HTG Molecular Diagnostics, Inc.
Annual Report 2016

Plain-text annual report

UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549 FORM 10-K (Mark One)☒ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2016OR☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934FOR THE TRANSITION PERIOD FROM TO Commission File Number 001-37369 HTG Molecular Diagnostics, Inc.(Exact name of Registrant as specified in its Charter) Delaware 86-0912294(State or other jurisdiction ofincorporation or organization) (I.R.S. EmployerIdentification No.)3430 E. Global LoopTucson, AZ 85706(Address of principal executive offices) (Zip Code)Registrant’s telephone number, including area code: (877) 289-2615 Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registeredCommon Stock, par value $0.001 per share The NASDAQ Global Market Securities registered pursuant to Section 12(g) of the Act: NoneIndicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES ☐ NO ☒Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. YES ☐ NO ☒Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past90 days. YES ☒ NO ☐Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted andposted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit andpost such files). YES ☒ NO ☐Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405) is not contained herein, and will not be contained, to the best ofRegistrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☒Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definition of “largeaccelerated filer”, “accelerated filer”, and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one): Large accelerated filer ☐ Accelerated filer ☐ Non-accelerated filer ☐ (Do not check if a small reporting company) Small reporting company ☒ Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES ☐ NO ☒The aggregate market value of the voting and non-voting common equity held by non-affiliates of the Registrant, based on the closing price of the shares of common stock on TheNASDAQ Global Market on June 30, 2016, was $8,218,698.The number of shares of Registrant’s Common Stock outstanding as of March 17, 2017 was 8,052,451. Table of Contents PagePART I Item 1.Business2Item 1A.Risk Factors37Item 1B.Unresolved Staff Comments66Item 2.Properties66Item 3.Legal Proceedings67Item 4.Mine Safety Disclosures67 PART II Item 5.Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities68Item 6.Selected Financial Data69Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations70Item 7A.Quantitative and Qualitative Disclosures About Market Risk80Item 8.Financial Statements and Supplementary Data80Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure116Item 9A.Controls and Procedures116Item 9B.Other Information116 PART III Item 10.Directors, Executive Officers and Corporate Governance117Item 11.Executive Compensation125Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters138Item 13.Certain Relationships and Related Transactions, and Director Independence140Item 14.Principal Accounting Fees and Services144 PART IV Item 15.Exhibits, Financial Statement Schedules145Item 16.Form 10-K Summary145 iPART IUnless the context requires otherwise, references to “HTG,” “HTG Molecular Diagnostics,” “we,” “us” and “our” refer to HTG Molecular Diagnostics,Inc.Forward-Looking StatementsThis Annual Report on Form 10-K, including the sections entitled “Business,” “Risk Factors” and “Management’s Discussion and Analysis ofFinancial Condition and Results of Operations,” may contain forward-looking statements. We may, in some cases, use words such as “anticipate,” “believe,”“could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “should,” “will,” “would” or the negative of those terms, and similarexpressions that convey uncertainty of future events or outcomes, to identify these forward-looking statements. Any statements contained herein that are notstatements of historical facts may be deemed to be forward-looking statements. Forward-looking statements in this Annual Report include, but are not limitedto, statements about: •our ability to successfully commercialize our products and services, including our HTG EdgeSeq assays and corresponding automationsystems; •our ability to generate sufficient revenue or raise additional capital to meet our working capital needs; •our ability to secure regulatory clearance or approval, domestically and internationally, for the clinical use of our products; •our ability to develop new technologies to expand our product offerings, including direct-target sequencing for detection of mutations ingenomic DNA and/or expressed RNA (such as single-point mutations and gene rearrangements, like gene fusions and insertions), and methodsto detect mutation load and microsatellite instability; •the implementation of our business model and strategic plans for our business; •the regulatory regime for our products, domestically and internationally; •our strategic relationships, including with holders of intellectual property relevant to our technologies, manufacturers of next-generationsequencing, or NGS, instruments and consumables, critical component suppliers, distributors of our products, and third parties who conduct ourclinical studies; •our intellectual property position; •our expected use of proceeds from our initial public offering; •our ability to comply with the restrictions of our debt facility and meet our debt obligations; •our expectations regarding the market size and growth potential for our life sciences and diagnostic businesses; •our expectations regarding trends in the demand for sample processing by our biopharmaceutical customers; •any estimates regarding expenses, future revenues, capital requirements, and stock performance; and •our ability to sustain and manage growth, including our ability to develop new products and enter new markets.These forward-looking statements reflect our management’s beliefs and views with respect to future events and are based on estimates and assumptionsas of the filing date of this Annual Report and are subject to risks and uncertainties. We discuss many of these risks in greater detail under “Risk Factors.”Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management topredict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actualresults to differ materially from those contained in any forward-looking statements we may make. Given these uncertainties, you should not place unduereliance on these forward-looking statements. Except as required by law, we undertake no obligation to publicly update any forward-looking statements,whether as a result of new information, future events or otherwise.1Item 1. Business.OverviewWe are a commercial stage company that develops and markets products and services based on proprietary technology that facilitates the routine useof targeted molecular profiling. Molecular profiling is the collection of information about multiple molecular targets, such as DNA and RNA, also calledbiomarkers, in a biological sample. Molecular profiling information has many important applications, from basic research to molecular diagnostics inpersonalized medicine. Our technology can be used throughout that range of applications, which is just one of its many benefits. Our focus is on clinicalapplications. Our primary customer segments include biopharmaceutical companies, academic research centers and molecular testing laboratories.Historically, molecular profiling has faced several technical challenges in clinical applications. These include (i) limited “multiplexing,” which meansonly a few biomarkers could be tested in a single sample, (ii) the need for vast amounts of sample to test more than a few biomarkers, which often requiredseveral different technologies conducted in different locations, (iii) complex sample preparation, and (iv) manual and/or time consuming workflows. Evenwhere it was possible to test tens, hundreds or thousands of biomarkers, such as with fixed arrays, data analysis could be quite complicated and timeconsuming.Our proprietary technology has several key differentiators, including (i) multiplexing from tens to thousands of biomarkers in a single sample, (ii) verylow sample input requirements, (iii) simple, extraction-free sample preparation, which is effective with a wide variety of samples, (iv) automated workflowwith sample-to-result turnaround times rivaling any current competitor, and (v) simplified data output. In addition, our HTG EdgeSeq assay technology,launched in 2014, generates a molecular profiling library for detection using NGS. Among other things, NGS provides improved sensitivity and dynamicrange for our HTG EdgeSeq assays. We believe these advantages position us to outperform most other now-available molecular profiling technologies,especially in certain sample types, such as formalin-fixed, paraffin-embedded tissue, or FFPE. While we continue to advance our technology, we areparticularly focused on gaining market recognition and expanding our product offerings.Our current sources of revenue include services provided by our VERI/O laboratory (discussed below) and sales of our automation systems andintegrated NGS-based HTG EdgeSeq assays. Our current assay product offerings include the following: •HTG EdgeSeq Oncology Biomarker Panel, •HTG EdgeSeq Immuno-Oncology Assay, •HTG EdgeSeq Lymphoma Panel, •HTG EdgeSeq microRNA Whole-Transcriptome Assay, and •HTG EdgeSeq DLBCL Cell of Origin Assay.Our assays are currently sold for research use only, except in Europe where our diffuse large B-cell lymphoma, or DLBCL, assay is CE-marked andavailable for diagnostic use. In March 2017, we obtained CE-marking of our HTG EdgeSeq ALKPlus Assay in Europe, and we continue work on our pre-market approval, or PMA, submission for this assay in the United States. In 2017, we also have a focused development pipeline of new profiling products,which includes planned panels for translational research, drug development, and molecular diagnostics with initial focus in immuno-oncology and nextgeneration pathology. We also expect to complete feasibility testing on several new technological developments, including our direct-target sequencing“version 2” chemistry, or V2 chemistry.Our HTG EdgeSeq assays are automated on either our HTG Edge or HTG EdgeSeq platform, which may also be referred to as an “instrument” or“processor” and which, together with the assay, is a fully integrated system. Our HTG Edge platform can run both our original, plate-based assays and ourNGS-based HTG EdgeSeq assays. We continue to support a small number of customers interested in utilizing our plate-based assays (such as our HTG EdgeDMPK Core CYP Assay or otherwise on a custom manufacturing basis); however, in 2016, based on market trends and customer feedback, we shifted ourproduct focus to our NGS‑based HTG EdgeSeq system.Customers can also obtain the advantages of our proprietary technology by engaging our VERI/O laboratory for pre-clinical and clinical research-related services, including drug development and translational research. Our VERI/O lab processes samples for molecular profiling data or, if aligned with ourclinical diagnostic product strategy, designs custom research or investigational profiling assays. In 2017, we also expect to deploy our V2 chemistry in theVERI/O lab for detection of DNA mutations.We believe the value propositions of our products and services are gaining significant recognition. In 2016, we entered into agreements with Bristol-Myers Squibb, or BMS, and Merck KGaA, which are just two examples of the 36 individual project programs with biopharmaceutical companies employingour proprietary technology in their clinical research and drug development programs as of December 31, 2016. 2As we navigate product-related regulatory requirements to launch additional molecular diagnostic products, initially in Europe and then in the UnitedStates, we expect our research products and services will continue to drive market recognition and technology adoption. Further, we expect that strategicallypositioning our proprietary technology, products and services in drug or other clinical development programs will drive a future, ongoing portfolio ofmolecular diagnostic products, including companion diagnostic products.We have incurred significant losses since our inception, and we have never been profitable. We incurred net losses of $26.0 million and $21.4 millionfor the years ended December 31, 2016 and 2015, respectively, and we had an accumulated deficit of approximately $115.6 million as of December 31, 2016.As of December 31, 2016, we had available cash and cash equivalents totaling approximately $7.5 million and investments in short-term corporate andgovernment debt securities totaling $4.3 million, and had current liabilities of approximately $10.0 million plus an additional $14.0 million in long-termliabilities primarily attributable to our growth term loan and our obligation to NuvoGen Research LLC, or NuvoGen. Our StrategyOur objective is to establish the HTG solutions as the standard in molecular profiling, and to make their benefits accessible to all molecular labs fromresearch to the clinic. The key components of our strategy are: •Focus on immuno-oncology based molecular profiling. We plan to develop novel RNA-based gene classifiers to help biopharmaceuticalcompanies and leading translational medicine researchers better understand and predict durable response to immune checkpoint inhibitor drugcandidates, such as anti-PD-L1 therapeutics, in mono- and combination therapies. We also plan to develop novel DNA profiling tests that canprovide information about mutation load and microsatellite instability, which are genetics factors believed to be associated with response toimmune checkpoint inhibitor therapies. •Increase and strengthen companion diagnostics collaborations with biopharmaceutical companies. We believe collaborations withbiopharmaceutical companies with late-stage drug development programs will lead to us generating companion diagnostic consumablesrevenue. As of December 31, 2016, we had 36 active development programs across 16 leading biopharmaceutical companies which areincorporating companion diagnostics in their drug development programs. We plan to expand upon our first companion diagnostic partnership(Merck KGaA for DLBCL cell of origin determination) with additional companion diagnostic collaborations. We have entered into anagreement with QIAGEN Manchester Limited, a subsidiary of QIAGEN, N.V., or QIAGEN, to expand our commercial and technical capabilitiesin this market. We intend to continue to leverage our VERI/O laboratory services business to enable nimble response to emergingbiopharmaceutical molecular profiling requirements. •Increase our market adoption by leveraging the advantages of our technology, including low sample input and high sensitivity. We plan topromote global adoption of our proprietary technology in molecular labs, biopharmaceutical companies and major translational researchcenters by demonstrating the key differentiating aspects of our chemistry and platforms, such as small sample utilization, multiplexing andhigh sensitivity. These advantages result in cost, time and ease of use benefits for our customers. To facilitate adoption, we announced andbranded our VERI/O service laboratory, in 2016, to support customers who desire additional laboratory capacity, assay design services, and/orto access our service-only content offerings and, in addition, we continue to offer our HTG EdgeSeq system and reagents to customers whowant to bring our technology in-house. •Establish our systems workflow as the best solution for clinical sequencing. We intend to continue to establish our technology as the bestsample and library preparation method for clinical applications with next generation sequencers. We believe our differentiated HTG EdgeSeqchemistry will accelerate adoption by leveraging the large and growing installed base of next generation sequencers. We are engaged withindustry and corporate partners including Illumina, Life Technologies Corporation and QIAGEN, to position our HTG EdgeSeq products as thebenchmark for workflow in targeted sequencing applications.3 •Develop new molecular diagnostic panels with high medical utility. The HTG platforms were developed with features that we believe willenable local molecular labs to routinely test targeted RNA expression, including expressed gene mutations, such as ALK gene rearrangementsusing our HTG EdgeSeq ALKPlus Assay, all from extremely small samples, such as a single five micron section of FFPE tissue. We plan todevelop future molecular diagnostic assays in conformance with existing reimbursement codes to facilitate our clinical customers’ billings. Wealso plan to work in the major European medical centers to develop and validate certain solid tumor classifiers and lower cost alternatives forbreast and prostate cancer testing. •Expand the addressable market of HTG technology through new applications. We have demonstrated technical feasibility for several newapplications that are intended to allow us to measure DNA mutations directly and in expressed RNA, and improve the already-high sensitivityof our HTG EdgeSeq assays. These new applications are expected to allow us to, among other things, develop future “multi-parameter” panelsthat detect both RNA and DNA targets in a single assay, for use in translational research, companion diagnostics and molecular diagnostics. Webelieve these applications and panels can be developed efficiently with reasonable capital investment.Our MarketDevelopment of Molecular ProfilingMolecular profiling is the analysis of biomarkers, including DNA and RNA and protein, in biological samples, such as tissue, cells, blood and otherbiofluids, to identify gene expression patterns or genomic changes. New molecular approaches are making it possible to perform these characterizations inunprecedented ways, resulting in a shift from the traditional approach of looking at one target at a time to the simultaneous analysis of potentially tens,hundreds or thousands of targets.Among what we believe are the most promising applications of molecular profiling is the targeted sequencing of RNA and DNA from patient samplesto identify gene expression patterns or molecular markers of disease that can aid in diagnosis, gauge patient prognosis or predict response to an availabletherapy. These applications have launched a fundamental shift towards personalized medicine where an individual patient’s molecular profile is used toguide treatment.We estimate that the global molecular profiling market is approximately $27.0 billion today. Based on published industry reports, cancer profilingmakes up the largest segment of this market at an estimated $17.8 billion, the substantial majority of which we believe currently consists of research-use-onlyproducts, and is expected to grow to $35.0 billion by 2018. Our initial diagnostic products target the approximate $4.0 billion pathology related diagnosticmarkets where we can transition existing testing methods to NGS-based workflows. The companion diagnostic market is currently estimated at $2.5 billionand growing approximately 18% annually. We believe that the acceleration of investment into immuno therapy drugs will also be a catalyst for futurecompanion diagnostics for combination therapies where gene expression classification is expected to be important. For decades, the treatment of disease was dominated by one-size-fits-all drug regimens. Over the last 10 years, numerous molecular markers andprofiling techniques have transitioned from research tools to inclusion in clinical guidelines for patient care. Oncology drug developers have also seen thebenefits of molecular markers and today there are many drugs in clinical development with a companion biomarker strategy.Among the vanguard of these personalized treatments were hormone therapies for breast cancer patients whose tumors expressed the estrogen receptorprotein. This was followed using trastuzumab for treating patients with HER2-positive breast cancers. This paradigm shift led to significantly improvedpatient outcomes when compared to the non-specific, chemotherapeutic approaches used in the past. The evolution of molecular profiling has also taken shape over the last decade in non-small cell lung cancer, or NSCLC. NSCLC patients were firstprofiled for EGFR gene mutations to select patients most likely to respond to the drug erlotinib. Next came testing for ALK gene rearrangements as anindicator of response to the drug crizotinib. Now, additional mutations and rearrangements such as ROS1, RET, HER2, KRAS and MET, have been integratedinto the NCCN guidelines for the treatment of lung cancer and are used to guide patient treatments.Similar trends are unfolding in other diseases such as thyroid cancer, colon cancer, and melanoma. These trends are fueling rapid growth of newmolecular profiling offerings, technologies and industry business models to support the demand. The fastest growing segment of the estimated $10.6 billionmolecular diagnostics market, a subset of the estimated $27.0 billion global molecular profiling market, is clinical testing in oncology. As oncologistsrapidly integrate this new level of molecular profiling information into patient management strategies, a growing number of highly specialized centrallaboratories now offer tests that address specific clinical questions. The trend towards highly multiplexed profiling is not limited to oncology; otherexamples of expanding demand include prenatal, neonatal, inherited disease, and organ transplant and rejection profiling.4Molecular profiling continues to move into clinical applications, including molecular profiling to develop clinical biomarker strategies, patientstratification for clinical trials, and companion diagnostics. The primary goal is to develop an understanding, at the molecular level, about why a drug does ordoes not work in a patient population. Variability in patients’ gene expression patterns is believed to at least partially explain why the 25% response rate foroncology therapeutics is among the lowest for all disease states.While the primary objective of these drug-development efforts is to improve response rates, third-party payor pressures to lower patient treatment costsalso plays a significant role. As a result, most biopharmaceutical companies develop biomarker strategies to increase the rate of patient response to new drugsin development. Typically, studies will focus on a variety of biological profiling markers that include RNA or protein expression levels, and/or presence orabsence of DNA mutations (such as gene fusions and rearrangements), which can be detected in genomic DNA or expressed RNA or protein. Currently, it isestimated that there are over 2,000 clinical trials underway in oncology, and that the clear majority of drug developers believe personalized and targetedtherapy development is important to the future success of drug development.When a molecular biomarker panel is used for selection of patients in a Phase 3 clinical trial to demonstrate safety and efficacy of a new drug, the drugand biomarker test are often submitted to the applicable regulatory agency for approval together. In the United States, upon Food and Drug Administration,or FDA, approval of the biomarker test, or companion diagnostic, the patient must be tested with the companion diagnostic prior to treatment with the drug.Companion diagnostic tests have a clear clinical utility which generally supports favorable reimbursement decisions. We believe there are over 900 activeoncology drug development programs, most of which have molecular biomarker strategies, creating a significant opportunity for molecular diagnosticcompanies with the right molecular profiling solutions.Complexities and Challenges of Molecular Profiling TodayCurrently, molecular profiling typically is conducted in the clinical setting using a variety of profiling techniques and instrumentation platformsacross multiple laboratory departments, and, in many situations, sent to distant labs. These techniques include immunohistochemistry, or IHC, fluorescent insitu hybridization, or FISH, polymerase chain reaction, or PCR, gene expression arrays, or GEA, and NGS. This distributed profiling approach has acceleratedthe use of molecular profiling and increased the need to make the process more accessible and routine. However, molecular profiling is also highlyspecialized because current technologies are complex, require multiple capital-intensive workflows, and are not economically scalable to the case volume ofthe local laboratory. The fragmentation of methods, sample logistics and information flow has created significant challenges for labs, physicians and patientsas discussed below.Insufficient Sample AvailabilityThe proliferation of new molecular profiles and technologies has led to the need for more biopsy material to conduct tests of interest. However, thetrend is toward less invasive procedures that produce smaller biopsies and thus, in many situations there simply is not enough collected sample to meet allthe profiling requirements. For example, historically, the standard method of collecting tumor samples for testing in oncology is via a surgical procedurewhere the tumor is resected or biopsied and then stabilized, or fixed, in a formaldehyde-based fixative known as formalin. Between 24 to 72 hours after thetissue is removed from the patient, it is permanently stabilized in a hard block of paraffin where it can be stored at room temperature for decades. Thispreservation technique was developed over 100 years ago, well in advance of the discovery of nucleic acids such as DNA and RNA. While techniques torecover nucleic acids from these FFPE tissue samples have been developed, formalin fixation presents several technical challenges in analyzing DNA andRNA sequences. Because of the convenience of this preservation method, though, FFPE samples are the starting material for almost all tumor-profiling testingin oncology today.Most commonly, in the past and continuing today, very thin slices of tissue from FFPE blocks, typically five microns in thickness, are affixed to glassslides for testing. Then, a histological stain called an H&E (for the combination of hematoxylin and eosin) is used to differentially mark cellular structures,making it simple for a pathologist to examine the patterns of the normal and diseased tissue under a microscope. IHC stains are also often performed on FFPEtissue slides to aid diagnosis, prognosis or help guide therapy selection, with each IHC stain consuming two slides, one for the stain, and the other for anegative control. Historically, five to ten slides in total were consumed in the complete diagnostic workup for each tumor. With the advent of new moleculartechniques there are additional demands for tissue, and most molecular tests on the market today require much more than a single slide. In many clinicalsituations, there simply is not enough collected tissue to meet all the profiling requirements. The growing number of specialized tumor-profiling tests, andtheir appetite for FFPE tissue or other sample material, is in direct conflict with the trend towards smaller, less-invasive testing approaches.Slow Turnaround TimesIn many cases, turnaround times for comprehensive profiling of a patient’s sample(s) are several weeks due to the logistical time to route samples tovarious laboratory departments and to distant specialized labs. Several technologies for sample characterization5have been used and introduced over the years to determine the status of various molecular characteristics for a sample. These characteristics include RNA andprotein expression levels, and/or the presence or absence of DNA mutations, such as single-point mutations and gene fusions and rearrangements, whichmutations can be detected in genomic DNA or expressed RNA and protein. A single tumor specimen from a cancer patient is often profiled for multiplemolecular characteristics where each characteristic is measured using a different platform. These platforms are utilized in separate laboratory departments orinstitutions with different technicians and clinicians, requiring that the sample and data be split into multiple workflows. This also requires even more sampleconsumption.The time it takes to deliver the final report to a treating physician so that informed treatment decisions may be made is dependent on the turnaroundtime of the slowest test. A single laboratory with well-choreographed routing of tissues and information may be able to complete sample profiling within aweek, but if part of the sample needs to be sent for additional profiling at a specialty lab, the total turnaround time may be lengthened by one or two weeksdue to shipping, accessioning by the receiving laboratory and integration of the testing results into the final report.Implications of Workflow Inefficiencies on Data Quality and IntegrationIn addition to the challenges of splitting a single sample into multiple testing workflows, the individual workflow for molecular profiling ofbiological samples, including FFPE tissues, is complicated. Many of the steps from sample to result require manual intervention by a molecular technician.While these technicians are trained to standard operating procedures and proficiency tested, the levels of proficiency and precision vary among technicians.Variability introduced by technicians performing manual steps can translate to variability of results, with a test sample frequently at risk of experiencinglosses of fidelity through the series of separation and transformation steps.Further, the increase in number of technologies for sample characterization and fragmentation of the testing workflows can also create challenges inputting all the results together in a timely, complete profiling report. This level of data integration is critical for the treating physicians to assure they havethe complete molecular assessment prior to consultation with the patient. Without a complete molecular assessment, there is limited ability to discuss thediagnosis, prognosis and treatment options. Overall, we believe the critical relationship between the local pathologist and treating physician has beenfractured as many tests results are now sent directly to the treating physician from these specialized and centralized Clinical Laboratory ImprovementAmendments, or CLIA, laboratories. We believe the pathologist is critical to aggregating the diagnostic, prognostic and predictive information in a singlepatient molecular profile that can be utilized by the treating physician for therapeutic decisions.Case Study of the Current Limitations in Molecular Profiling: Immuno-OncologyA rapidly developing area of oncology drug development is the broad grouping of approaches referred to as immuno-oncology therapies. Theseimmuno-oncology therapeutics include checkpoint inhibitors such as Keytruda (pembrolizumab) for melanoma and NSCLC, cancer vaccines such aschimeric antigen receptors in development by various companies and immunomodulatory therapies such as interferon-alpha. Increasingly, these immuno-therapies are being coupled with more traditional oncology drugs such as tyrosine kinase inhibitors and chemotherapeutics to create synergistic treatmentoptions that attack multiple aspects of the tumor and potentially increase patient response.While single-biomarker IHC tests have been approved as companion or complimentary diagnostics for anti-PD-1 checkpoint-inhibiting therapies, aproliferation of checkpoint inhibitors targeting additional ligands and receptors for CTLA4, OX40, LAG3, TIM‑3 and others, coupled with combinationapproaches, is challenging the one-biomarker / one-drug diagnostic paradigm that previously advanced IHC-based companion diagnostics (e.g. HER2, ALK,c-KIT, etc). Understanding the complex biological framework of the tumor microenvironment is becoming increasingly important in interpreting the hostimmune response to tumors and developing the best single or combination therapy approach. 6The need for multiplexed gene expression assessment is illustrated in the graphic below where two histologically similar DLBCL tumors elicit verydifferent host immune responses. Both cases have similar tumor composition and large populations of tumor infiltrating lymphocytes (see left-most panel). Incase 1, however, the immune system is responding primarily with natural killer lymphocytes, as indicated by the biomarker expression shown in the right-most panel; whereas in case 2, the immune system expresses biomarkers of CD8 cytotoxic lymphocytes (center panel). Based on this information and otherclinical parameters, very different immunotherapeutic strategies may be recommended to combat the tumor. We believe that current molecular profilingtechniques, like IHC, FISH or RT-qPCR, are ill-suited for comprehensive assessment of the tumor microenvironment at least because of the amount ofinformation (e.g. number of biomarkers) relevant to the clinical decision making that needs to be collected from limited amounts of sample in a time- andcost-efficient way. Case Study of the Current Limitations in Molecular Profiling: NSCLCThe complexities and potential inefficiencies present in current molecular profiling techniques can be seen in NSCLC. While an increasing number ofclinical parameters are being assessed using multiple testing methodologies, the size of the tumor specimen has dramatically decreased, with approximately70% of lung cancer patients receiving their diagnosis from a small biopsy or cytological specimen. Personalized therapy and entry into clinical trials forNSCLC are heavily dependent on accurate histological classification which is typically performed by IHC. Tumor samples are also routinely tested forvarious gene mutations and gene rearrangements, with each of these tests performed on a different platform with a disparate workflow.It is common for each of these platforms to be in separate laboratory departments and/or locations with different technicians and clinicians, requiringthat the already small sample be split into multiple workflows. The results from the individual testing workflows are typically aggregated into a single report,signed off by the pathologist and transmitted to the oncologist. As outlined in the diagram below, the multiple steps involved in the process maysubstantially slow turnaround times and result in an incomplete molecular profile not suitable to inform clinical decision making.7Example of Typical NSCLC Testing Workflow Our SolutionWe have developed and sell assays, automation platforms and services based on a proprietary technology that provides precise, efficient molecularprofiling of samples for clinical and research purposes. Our proprietary products and services are designed to work with many different biological sampletypes, can generate robust results from very small samples, and obviate the need for many of the sample-preparation steps associated with traditionalmolecular profiling techniques. Our platforms and assays enable the simultaneous detection and quantitation of tens, hundreds or thousands of moleculartargets and are capable, now or in the future, of profiling multiple parameters such as RNA expression levels, RNA-expressed gene fusions and insertions andDNA mutations in a single testing workflow that can use NGS detection for quantitative measurement.We manufacture the consumables utilized with our platforms specifically for our platforms and these consumables cannot be obtained from othersources. At the core of our solution is our proprietary chemistry called quantitative nuclease protection, or qNPA. Our qNPA-based chemistries provide anextremely efficient method for analyzing DNA and RNA as it eliminates the need for DNA or RNA extraction or reverse transcription. We designed anddeveloped our HTG automation platforms to optimize the capabilities of our chemistries, provide fast turnaround time and enable ease of use to molecularlabs. Our chemistries and automation platforms are highly adaptable, so when molecular profiling needs change or emerge, we expect to be able to efficientlyadd new applications to address these needs.The HTG systems provide data in a simple easy to use format. The entire workflow for both systems from sample preparation to a molecular profilingreport can be accomplished in 24-36 hours.We believe most customers in our target markets would prefer to maintain control of their samples and perform the profiling internally but arechallenged by limitations in available technologies. We believe we are well positioned to democratize molecular profiling with the following key benefits: •Optimize sample utilization. The HTG systems can analyze as many as 2,500 genes from extremely small sample volumes such as a single fivemicron section of tissue or 15 microliters of plasma or serum. Our technology allows customers to do more with less, which meets the needs ofclinical or pre-clinical laboratories where today there is often not enough patient sample to do all the testing available or desired. We believeproviding customers the ability to work with extremely small sample will be a significant driver of adoption of our technology and systems. •Compatibility with multiple sample types. Our HTG systems allow customers to profile and unlock molecular information from a wide varietyof biological samples such as FFPE tissue, cells, blood serum and plasma. We have successfully demonstrated the ability to profile these andother sample types, and believe we ultimately can profile most clinically relevant sample types, including cell-free circulating nucleic acidsfrom tumors, a rapidly developing area of investigation which is referred to as a liquid biopsy. We believe that the capabilities of our systemwill allow us to efficiently expand applications, regardless of sample type.8 •Flexible and adaptable chemistry allows for use in multiple applications. We believe our proprietary chemistry provides the ability to measurea variety of molecular targets in many necessary applications, including RNA expression levels, expressed RNA gene rearrangements (such asgene fusions and insertions), and DNA point mutations, and offers the ability to quantify these applications on a variety of NGS platforms. Thisflexibility provides customers the ability to optimize their use of our technologies based on their specific throughput, workflow andapplication needs. Our proprietary chemistry is comparatively simple, with fewer steps than competing technologies. For example, compared toRT-qPCR, our chemistry does not require extraction or cDNA synthesis. Compared to traditional RNA sequencing, our chemistry does notrequire extraction, cDNA synthesis, shearing, rRNA depletion, ligation, adenylation, or size selection. We believe that the elimination of thesesteps helps prevent biases associated with these steps, sample degradation and increased opportunities for technician error. •Robust data. Molecular profiling produces large amounts of information that is used, among other things, to make important decisions, such asidentifying potential drug targets or selecting a patient for a therapeutic treatment. This information is valuable only to the extent it accuratelyrepresents the true biology of the test sample and the same answer can be produced under many different conditions. Our chemistries are highlyspecific and sensitive, meaning they can detect the right target even when very little is present in the sample. Our system produces consistentresults on a replicate-to-replicate, day-to-day and instrument-to-instrument basis. •Automation provides superior workflow and ease of use. Our technologies are designed with fewer workflow steps in part due to theelimination of the need for complex sample-preparation processes such as extraction, cDNA synthesis, labeling, selection, depletion andshearing. This enables customers to limit hands-on time and the need for specialized skills, resulting in turnaround times of approximately 24-36 hours. Additionally, our HTG EdgeSeq application further integrates sample preparation for targeted sequencing and greatly simplifies thedata bioinformatics, so customers looking to leverage their NGS instrument can seamlessly add this capability to their current workflows. •Simplified bioinformatics. Our software provides data in a simple and easy to use format through a simple graphical user interface, or GUI, thatis flexible enough for researchers yet structured enough for clinical laboratories. The HTG EdgeSeq parser software, which processes the datafrom the NGS platform, is modular so that new applications can be downloaded without any changes to hardware. We believe the simplicity ofour bioinformatics solution will help drive the adoption of our platform.Current Commercial Panels Offered on the HTG PlatformsWe currently market proprietary molecular profiling panels targeting late stage drug development programs with potential breakthrough therapies,such as immuno-oncology. We market these panels to biopharmaceutical companies, with which we collaborate in biomarker development programs. Webelieve these programs could facilitate our commercialization of companion diagnostic tests. In addition, our panels are used in pre-clinical and clinicalresearch areas, which, we also believe, will facilitate our commercialization of diagnostic tests, including tumor classifiers and prognostic tests. Our currentlymarketed panels are: •HTG EdgeSeq Immuno-Oncology Assay. One of the most promising areas of cancer therapy is immunotherapy or immuno-oncology, where newclasses of oncology drugs are thought to enable or boost the host immune response towards tumors. Multiple drugs targeting the genes CTLA4,PD-1 and PD-L1 are on market with additional candidates moving into late-stage trials. Profiling samples for the genes targeted by thesetherapies may be predictive of drug response and aid in the stratification of patients into responsive and non-responsive groups. The HTGEdgeSeq Immuno-Oncology Assay measures the expression of 549 of these immuno-oncology-associated genes. •HTG EdgeSeq DLBCL Cell of Origin Assay. DLBCL tumors are frequently classified into either the activated B-cell like, or ABC, or germinalcenter B-cell like, or GCB, sub-types by measuring the molecular profile of the tumor. These two subtypes display different clinicalpathologies, as patients with the GCB subtype of DLBCL tend to respond differently than those of the ABC sub-type. With many of the largenumber of new DLBCL-targeting drugs appearing to have greater efficacy in one of the sub-types, a need for a reliable, FFPE-based cell oforigin classification assay has emerged. The HTG EdgeSeq DLBCL Cell of Origin Assay is being utilized in numerous late-stage drug programsto stratify these patients. •HTG EdgeSeq Oncology Biomarker Panel. This RNA expression panel measures the expression of up to 2,560 genes implicated in cancer forprofiling tumor tissues, analyzing cancer pathways and identifying new biomarkers across both solid tumors and hematolymphoid neoplasms.We worked with key opinion leaders to identify the genes in this panel, which we believe is a comprehensive list of genes targeting knownsignaling pathways and receptor gene families implicated in cancer. Representative genes in this panel include EGFR, HER2, HER3, HER4,PD-1 and FGFR. When paired with our HTG EdgeSeq microRNA Whole-Transcriptome Assay (below), we provide customers with acomprehensive solution for profiling their large sample archives for novel expression signatures.9 •HTG EdgeSeq Lymphoma Panel. Measures the expression of 92 genes frequently assessed in lymphomas, including 22 common non-HodgkinsB-cell lymphoma markers from a single 5 micron thick FFPE section. This product is designed to enable detailed molecular profiles oflymphomas using a single FFPE slide. •HTG EdgeSeq microRNA Whole-Transcriptome Assay. Human microRNAs are short non-coding strands of RNA that are believed to be used bythe cell for gene regulation. The HTG EdgeSeq microRNA Whole-Transcriptome Assay enables the simultaneous profiling of 2,083microRNAs, allowing new, potentially clinically relevant miRNA profiles to be discovered. Our ability to efficiently profile small FFPEsamples is a significant differentiator in the rapidly growing microRNA market. •HTG Edge DMPK Core CYP Assay. Biopharmaceutical companies often perform DMPK profiling studies as part of the drug developmentprocess to adhere to regulatory guidance. A set of genes known as the cytochrome P450 family is known to predict both the toxicity andstability of drugs in the human body. The HTG Edge DMPK Core CYP Assay enables DMPK scientists to measure six cytochrome P450 genesrecommended for in vitro pharmacokinetic studies. The DMPK area is a high-volume profiling market segment and creates synergies withdown-stream clinical drug development programs.We utilize several alternative arrangements to sell our systems. Our platforms can be purchased directly by our customers, who also then purchase HTGEdgeSeq assays and other consumables from us on an as-needed basis. In some instances, we provide our instruments free of charge on a limited basis tofacilitate customer evaluation. We also may choose to install instruments for our customers at no cost, in exchange for an agreement to purchase assays andother consumables from us at a stated price over the term of the agreement, or allow customers to rent our instrument for a monthly fee. As of December 31,2016, we had an installed base of 47 HTG Edge and HTG EdgeSeq instruments (consisting of 27 systems sold, six covered under reagent rental agreements,one rental, nine evaluation units and four systems with key opinion leaders). Product and Technology Pipeline PlanOur objective is to establish the HTG EdgeSeq system as a standard in molecular profiling, making this capability broadly accessible. We areleveraging our flexible and adaptable platform to develop comprehensive molecular profiling panels across an increasing set of molecular applications. Webelieve it is important to include applications that cover a broad set of genomic variation as well as expression-based clinical biomarkers to continuallyincrease the value of the HTG EdgeSeq system and provide a more complete profiling solution for our customers. The diagram below depicts our plannedexpansion of systems, applications and profiling panels which are being adding in a phased approach. 10Opportunities for Comprehensive Molecular Profiling in DiagnosticsWe are planning to develop a portfolio of molecular diagnostic products using our proprietary technology to provide a single, efficient testing systemfor sample profiling that integrates seamlessly into a customer’s NGS testing workflow.We are initially focused on areas where the diagnostic testing paradigm has significant inefficiencies. For example, many leading medical institutionsare shifting from a single-drug / single-test approach to a broader tumor profiling strategy for their oncology practices. Rather than testing for singlemutational analyses, such as KRAS mutations in colorectal cancer, these institutions use their NGS platforms to assess the mutational status of 50 or moregenes. In addition, the information a physician needs to make clinical decisions often comes from tests conducted using various testing modalities such asIHC, FISH and NGS. These complexities lead to a growing and unmet demand in clinical diagnostics for more comprehensive molecular profiles that caninclude RNA expression, RNA fusions and rearrangements, DNA mutations and protein expression.We are developing solutions to address the detection and measurement of gene rearrangements such as gene fusions and insertions. A fusion gene is ahybrid gene formed from two previously separate genes. A well-established example is the EML4-ALK fusion gene found in a subset of malignant lungcancers. Our research team previously demonstrated feasibility to simultaneously detect and measure key gene fusions in lung cancer such as ALK, ROS1,RET and NTRK1 from multiple small sample types including FFPE, cell lines and purified RNA. An insertion is the addition of one or more nucleotides intoa genomic sequence; a small percentage of NSCLC exhibit HER2 exon 20 insertions.We are currently developing our HTG ALKPlus Assay, or ALKPlus Assay, as our first clinical diagnostic test for the U.S. market. Our ALKPlus Assayis a comprehensive panel for lung gene rearrangements that will detect certain fusions in the following genes: ALK, ROS1, RET and NTRK1 as well as certaininsertions in HER2. This test panel is in clinical study phase and three of the four PMA modules have been submitted to the FDA. We completed the CEmarking of this assay in Europe in March 2017, and expect to obtain FDA pre-market approval for the ALKPlus Assay by late 2017 or early 2018. Theintended use for the ALKPlus Assay, if approved by the FDA, will be as a companion diagnostic for crizotinib therapy for ALK positive NSCLC cases.Information on the ROS1, RET, NTRK1 and HER2 gene rearrangements included in the ALKPlus Assay panel will be provided with RUO status. Afterobtaining the appropriate exemption(s), we believe the ROS1, RET, NTRK1 and HER2 gene rearrangements detected with the ALKPlus Assay could also beused for investigational use only, or IUO, for certain late-stage drug development trials, and, as appropriate, receive FDA approval in the future.When we look at the current state of a NSCLC patient assessment, the HTG EdgeSeq ALKPlus Assay fulfills one critical part of the current diagnosisprocess. Other critical factors clinicians need to understand NSCLC prior to treatment are the tumor sub-type (adenocarcinoma, or ADC, squamous cellcarcinoma, or SCC, neuroendocrine) and its EGFR and KRAS mutational status. A well-known U.S. cancer center recently published a peer-reviewed articleshowing that our technology can be used to determine whether a tumor is an ADC or SCC. In addition, we are currently developing enhancements to ourchemistry, our V2 chemistry, which we believe will enable direct-sequencing of EGFR and KRAS mutations in NSCLC and other disease states. Takentogether, these enhancements could, in the future, provide a single testing workflow, which we refer to as the HTG total lung solution, whereby informationabout the NSCLC subtype and status of clinically recognized biomarkers can be obtained in a single “multiparameter” test.Ultimately, we believe that HTG technology can bring multiparameter testing to a wide variety of solid tumor sample types. We will need to develop,refine and implement new panel protocols and make changes or adjustments to our chemistry and software to optimize these planned applications and panelsfor use with our HTG EdgeSeq system. This will require substantial effort from our research scientists and the use of various laboratory equipment, suppliesand materials, which combined represent the most significant costs that we expect to incur in connection with the development of these applications andprofiling panels. The HTG EdgeSeq system can augment or, in some cases, replace IHC testingIHC tests currently are integral to the diagnostic workup for most tumor types, providing qualitative protein expression data within the morphologicalcontext of the tissue tested. While there are over 400 different biomarkers tested by IHC in clinical practice today, we believe it is rare to test more than ten.This is due in part to tissue availability, especially for minimally invasive core needle biopsies, and limitations on the number of tests reimbursed per case.We are in the concept stage for an HTG EdgeSeq next generation pathology product, which is intended to enable the assessment of the RNA analogues for aclear majority of clinical IHC biomarkers in a single NGS-based test. We believe this single-test concept will provide pathologists a standard by which tomeasure all tumors, augmenting or in some cases replacing their IHC testing with a quantitative assessment of the tumor biology.11Serving the decentralized markets with Project JANUSIn addition to continued menu expansion for clinical diagnostic products we have begun the development of our next generation instrument targetingthe lower throughput clinical market segment. We refer to this development program as Project JANUS. We believe the lower throughput clinical marketsegment will potentially increase our addressable market for instrument sales from hundreds to thousands of labs. The molecular testing market is served by amix of centralized reference laboratories, comprehensive cancer centers, and decentralized regional hospital laboratories. Volumes of particular case typesand downstream testing needs for solid tumors are somewhat unpredictable for these providers. We believe Project JANUS is well suited for managing low,medium, and surge testing volumes; thus, assisting our customers with this unpredictable aspect of their businesses. We anticipate testing panels for ProjectJANUS to include mutations, fusions, expression classifiers and a molecular surrogate for IHC. Our approach is to serve centralized markets with the HTGEdgeSeq system and expand to the decentralized market with Project JANUS, as shown schematically in the following figure. We believe our current HTGEdgeSeq system has the throughput capabilities that match the needs of the centralized market. Project JANUS is our planned approach to expand ouraddressable market to the lower sample throughput labs and further decentralize the market. Due to various research and development priorities, ProjectJANUS development efforts were temporarily put on hold during the third quarter of 2016. We intend to resume development efforts as soon as reasonablyfeasible and as our V2 chemistry matures.Our Technology HTG ChemistriesThe qNPA chemistry used in our current HTG EdgeSeq assays reliably measures tens to thousands of messenger RNA, or mRNA, and microRNA geneexpression levels from very small amounts of difficult to handle samples without the need for conducting RNA extraction, cDNA synthesis, RNAamplification or RNA-labeling steps. Two primary elements of our chemistry process are DNA to RNA hybridization and S1 nuclease digestion. Bothelements have been widely researched for decades and are well understood. The method is described in more detail below.HTG EdgeSeq ChemistryOur HTG EdgeSeq chemistry is shown schematically in the following figure. Specifically, DNA nuclease protection probes, or DNA protection probes,which include a target-specific region flanked by universal wing sequences are hybridized to targeted RNAs. Target RNA can be both soluble and cross-linked in the biological matrix. Universal DNA wingmen probes are hybridized to the wings to prevent S1 nuclease digestion. S1 nuclease is added to removesingle-stranded nucleic acids, including unhybridized DNA12protection probes and RNA. Following S1 nuclease treatment, the only remaining DNA protection probes in the reaction are those hybridized to targetedRNA and wingmen probes to form a hybridized complex. This produces an approximately 1:1 ratio of DNA protection probes to the RNA targeted in thesample. Alkaline hydrolysis of the hybridized complexes releases the DNA protection probes from such complexes. The released DNA protection probes areready for quantitation. DNA protection probes are labeled with sequencing adaptors and tags in a thermocycler. The labeled DNA protection probes areconcentrated, pooled, and ready for sequencing using standard NGS protocols. Data from the NGS instrument is processed and reported by the parser softwareprovided with the HTG EdgeSeq system. HTG EdgeSeq V2 ChemistryLike our current HTG EdgeSeq chemistry described above, our next generation V2 chemistry is based upon nuclease protection probes, which are usedto protect regions of DNA and/or RNA for direct sequencing of the target. We expect to provide further details about the V2 chemistry in due course. We planto make our V2 chemistry first available in our VERI/O laboratory, in the first half of 2017, for services such as detection of selected DNA mutations.Key Advantages of HTG Chemistries •Multiplexing tens, hundreds or thousands of targets. Measuring multiple genes in a single reaction can be challenging with competitivetechnologies due to the complex interactions of reaction components. While we are currently marketing a panel with our HTG EdgeSeqchemistry that can profile up to 2,560 genes in a sample, we believe we can develop applications using our chemistry for multiplexing morethan 2,560 genes if there is a customer need. The high level of gene multiplexing allows for significantly lower amounts of tissue to be used persample than in competitive low-plex profiling technologies. •No RNA extraction. Competitive technologies for assessing RNA generally require RNA that is isolated and purified from other componentsfound in the sample. These time-consuming steps may lead to some target loss and bias the test outcome. In FFPE tissues, for example, it hasbeen reported that a fraction of the RNA is lost in the purification process because it cannot be separated from insoluble tissue components andthe fixation and embedding process or long storage times for FFPE tissue may damage the RNA and break it into smaller, more difficult toanalyze fragments. This makes molecular profiling of small FFPE tissues particularly challenging and can result in testing failures and loss ofprecious samples due to insufficient RNA recovery. These biases introduced by RNA extraction cannot be overcome and may be magnifiedthroughout the subsequent analysis. Our proprietary chemistry does not require RNA extraction for FFPE samples or most other sample types(we recommend extracting RNA from fresh-frozen tissue samples to prevent processing variability), improves utilization of precious samples,improving workflow and reducing costs by eliminating a step known to bias the data.13 •No cDNA synthesis. Many competitive technologies, most prominently qRT-PCR and traditional RNA sequencing, require conversion of RNAinto DNA for analysis. This process, called reverse transcription, requires an enzyme to move along the extracted RNA to create a DNA copy ofthe molecule. When damaged and fragmented RNA is used, these small RNA strands become increasingly difficult to convert into DNA in anaccurate and reproducible manner. Our proprietary chemistry does not require conversion of the RNA to DNA by reverse transcription,removing a technical difficulty experienced with competitive technologies. •Short protection probes. Many samples contain RNA degraded by various combinations of heat, age, poor processing, and fixation. In thesesamples, the RNA is damaged and fragmented into smaller strands. Utilizing short protection probes of 50 bases or less, our proprietarychemistry is more efficient than competitive technologies that require longer strands of RNA for quantitation. •Simplicity. Our proprietary chemistry is simple, with fewer steps than competing technologies. Compared to RT-qPCR, our chemistry does notrequire extraction or cDNA synthesis. Compared to traditional RNA sequencing, our chemistry does not require extraction, cDNA synthesis,shearing, rRNA depletion, ligation, adenylation, or size selection. We believe that the accumulation of these steps required by othertechnologies results in amplification of biases, sample degradation and increased opportunities for technician error.HTG Chemistry and Instrument PlatformsOur assays and instruments were developed and are manufactured under ISO 13485:2003 guidelines using our proprietary HTG EdgeSeq chemistry tosimplify multiplexed nucleic acid testing in research and clinical laboratories. The entire workflow from sample preparation to a molecular profiling reportcan be accomplished in approximately 36 hours for 96 samples. With the speed, flexibility, sensitivity, and accuracy of our HTG platforms, combined withthe system’s ability to work effectively with small sample volumes, researchers can profile tens, hundreds or thousands of different genes per sample. The HTG Edge and HTG EdgeSeq (shown above) platforms consist of a processor, a host computer and integrated software. The processor is a fullyautomated instrument that prepares biological samples for quantitation using proprietary, electronically barcoded, single-use consumables. The processor hasbarcode scanner units to process the two-dimensional barcodes printed on the consumables loaded into the instrument. The barcoded consumables are single-use in order to reduce operator errors and provide chain of custody traceability for the samples. The robotic systems within the instrument are engineered forreliable performance and low maintenance. The walking path of the robot is programmed to minimize any chance of contamination of the reagents orsamples. One host computer supports up to five processors allowing laboratories to easily expand their capacity by adding processors.HTG EdgeSeq applications combine either the HTG Edge processor or HTG EdgeSeq processor with an NGS platform to enable the quantitativeanalysis of tens, hundreds or thousands of targeted RNAs in a single panel. The sample is prepared for quantitation on the processor, then labeled withmolecular sequencing adaptors and tags. The labeled samples are concentrated, pooled, and sequenced on an NGS platform using standard protocols. Datafrom the NGS instrument are processed and reported by the parser software included with the system. HTG EdgeSeq assays currently are available to processsample batches ranging from eight to 96.HTG Edge and HTG EdgeSeq Platform WorkflowOur HTG platforms deliver complex molecular profiling information in a simple four step workflow. A technician spends relatively little timepreparing samples which are easily loaded into the applicable processor. Once the sample is loaded, the processor14performs our proprietary chemistry protocol with no technician intervention, which is commonly referred to as walk away automation. Once the sample isprocessed, a technician prepares the sample for quantitation on an existing NGS instrument. This flexibility in quantifying molecular information providescustomers the ability to optimize their use of the HTG Edge or HTG EdgeSeq platform based on their specific throughput, workflow and applicationrequirements. In comparison to traditional RNA sequencing (sometimes referred to as RNA Seq), there are many fewer steps required for molecular profilingusing HTG EdgeSeq applications as shown in the diagrams below.HTG Platform PerformanceOur HTG systems have performance characteristics that enable our customers to reproducibly, accurately and quantitatively profile from tens tothousands of genes in a single reaction using very small samples. This section provides details and examples of these performance characteristics.Equivalent quantitative expression results from large as well as very small samplesHTG EdgeSeq assays and panels are analytically validated with sample inputs ranging from as much as 25 mm2 to, in a few cases, 1.5 mm2 tumorsurface area from a single 5 µm section, enabling comprehensive molecular profiling on a large surgical resection or very small needle core biopsy. Needlecore biopsies are often the only tissue available for profiling of certain tumor types. A representation of the difference in the amount of tissue available in asurgical resection versus a core needle biopsy is shown graphically below (left panel). In an internal study using our HTG EdgeSeq resections versus coreneedle biopsies from the same non-small cell lung cancers (right panel), Pearson correlations (log2 transformed counts) greater than 0.96 were observed.These results indicate that our assay provides the same result for the two sample sizes tested. 15We believe obtaining molecular profiles from very small samples is of critical importance to our customers. We have demonstrated reproducible,quantitative results from a fraction of the more than 100 ng of input RNA typically required for competitive technologies. In the study shown below, the HTGEdgeSeq Oncology Biomarker Panel was used to measure mRNA expression levels in a dilution series from 12.5 ng to 1.56 ng of Universal Human RNA. Inthe figure titled Input Titration Correlations below, correlations between each dilution were measured by Pearson’s r and are displayed in each comparisonfield. A Pearson correlation between two perfectly identical molecular profiles will produce an r-value of 1.0. The r-values obtained in the study shownbelow, of greater than 0.99, indicate nearly identical molecular profiles were obtained throughout the dilution series. In the figure titled Assay Linearitybelow, the raw number of sequencing reads for each of the samples in the dilution series are shown, with the statistical measure of how close the data are tothe fitted regression line, R-squared, of 0.98481. These plots demonstrate the capability of the HTG EdgeSeq applications on the HTG Edge or HTG EdgeSeqplatform to deliver equivalent molecular profiles over a range of sample inputs. 16Leveraging the dynamic range and sensitivity of NGSThe end product of the HTG EdgeSeq assay is a library of DNA probes that, once sequenced, are compared to a reference database consisting of thesequences of the probes used in the assay. NGS platforms sequence each nucleotide of each DNA probe in the library to produce highly specific informationabout each such probe. Each nucleotide sequenced is stored as a single read. With the capacity of a single sequencing run numbering in the millions of reads,NGS platforms are highly sensitive, capable of detecting low abundance or rare sequences, while having a wide dynamic range, accurately counting therelative number of abundant sequences. In the development and validation of gene expression assays, we believe it is important that the applicable assayreliably measure differential gene expression for both high and low abundance genes. As an example of how the HTG EdgeSeq system leverages thesensitivity of NGS, the graphic below shows the relative expression of the low-abundance immunotherapy targeted genes PD-1 and PD-L1 across a widerange of sample inputs using the HTG EdgeSeq DLBCL Cell of Origin Assay. High fidelity between processing conditionsOne of the greatest challenges faced in molecular profiling of formalin fixed samples is the poor fidelity routinely seen when comparing the resultsacross various processing conditions. One example is the lack of fidelity seen between formalin fixed samples, such as FFPE, to non-fixed tissue. It has beenrepeatedly demonstrated that the fixation process can lead to different molecular profiles in otherwise identical samples. We believe researchers often obtainsub-optimal molecular profiling results solely due to the formalin fixation process. We further believe that our chemistry overcomes the losses in fidelitybetween non-fixed and FFPE tissues, enabling users to obtain an accurate assessment of tumor biology from FFPE tissues. 17To demonstrate fidelity between non-fixed and FFPE tissues that may be achieved using the HTG EdgeSeq system, a resection from a breast cancertumor was prospectively collected and split, with half of the specimen immediately frozen and the other formalin fixed and paraffin embedded. RNA from thenon-fixed, fresh frozen specimen was extracted and added to the HTG lysis buffer (we recommend extracting the RNA from fresh tissue samples to preventprocessing variability). The matched FFPE tissue was directly lysed in the HTG lysis buffer without extraction. Both specimens were then profiled using theHTG EdgeSeq Immuno-Oncology Assay. The scatterplot below shows the correlation between the non-fixed, fresh frozen tissue and the FFPE tissue, with aPearson correlation coefficient of r = 0.95, indicating that our proprietary chemistry produces the same result regardless of whether or not a sample is fresh orfixed. We believe our system enables researchers and clinicians to access their large collections of archived FFPE tissues to deliver reproducible, biologicallyrelevant molecular profiles. Compatibility with multiple sample typesWe believe our proprietary chemistry is robust across many biological sample types. Below are technical replicates of heart FFPE, plasma and wholeblood preserved in PAXgene profiled using the HTG EdgeSeq microRNA Whole-Transcriptome Assay. As shown by the high correlations, our customers canexpect the same result from a sample run after run. Detection of gene fusionsIn feasibility studies, HTG EdgeSeq chemistry has demonstrated the ability to accurately detect gene rearrangements in patient-derived FFPE tissues.The example below demonstrates detection in a patient sample with a characterized gene fusion involving the KIF5B and RETS genes. Using multiple DNAprotection probes, the HTG EdgeSeq system can detect gene rearrangements such as fusions. We are developing an assay that allows gene fusions to bedetected in two ways. First is the direct measurement and detection of the unique RNA sequence created at the gene fusion site. This is indicated by thestrong signal obtained from the KIF5B-RET v1 probe in the following graph. The second approach involves calculating the ratio of signals obtained fromprobes targeting both the 5’ and 3’ end of the RET gene. Samples which do not contain a RET gene fusion will have similar RET 5’ and RET 3’ expression.In the18sample above, however, which contains a RET gene fusion as indicated by the fusion-junction specific prove, we see significantly higher signal from theRET 3’ probe implying the two parts of the RET gene are no longer connected, indicating a gene rearrangement has occurred. A cell line with a known ALK gene fusion and normal (or wild-type) ROS1 gene was tested using the same 5’ and 3’ probe ratio methodologydescribed for the RET fusion above. As expected with a fused ALK gene, the expression of the 3’ portion of the transcript is much higher than the 5’ portion,indicating a fusion event has occurred. An example of a known non-fusion gene, ROS1, is also shown in the example where the 5’ and 3’ ends of the ROS1are expressed at a 1:1 ratio, indicating this gene has not undergone a fusion event. 19Discriminating between closely related sequencesThe specificity of our proprietary chemistry is demonstrated in the data chart below. Closely related synthetic miRNA pools supplied by Associationof Biomolecular Resource Facilities were split between pools. All possible probes were used to profile individual pools. As shown in the following graphs,from 3-11% of NPP probes bound to off-target sequences with a 1-base difference (right graph) while only 0.1-0.3% of NPP probes bound to off-targetsequences with a 2-base difference (left graph). In both examples, the on-target hybridization signal is at least 8X greater than off-target hybridization. Datawas generated using the Illumina MiSeq v2 1x50 reagent kit. We believe that our proprietary chemistry is highly specific and will enable our customers todiscriminate between closely related sequences. RepeatabilityAn important consideration in adoption of a molecular profiling platform is the degree to which the same molecular profile can be obtained from asample tested on multiple replicates and multiple occasions. Obtaining highly similar profiles indicates that the panel is stable, and that the data generated isreliable and repeatable. The XY scatterplots below show the correlation between the same sample on technical replicates using the HTG EdgeSeq Immuno-Oncology Assay. Extremely similar results were obtained, as demonstrated by the Pearson correlation coefficient r-values of 0.96 and 0.97 for fresh frozen andFFPE samples, respectively. We believe the HTG EdgeSeq system enables our customers to produce stable and repeatable molecular profiles. Asdemonstrated by the measurement of 549 mRNAs in the sample, HTG EdgeSeq chemistry has the ability to reliably detect large numbers of genes in acomplex background. 20 ReproducibilityAnother important consideration in adoption of a molecular profiling platform is the degree to which the same molecular profile can be obtained froma single sample tested multiple times over on the same and different instruments. Obtaining highly similar profiles indicates that the chemistry andinstrument platform is stable, and that the data generated is reliable and reproducible. The XY scatterplots below show the correlation between the samesample profiles on three separate instruments across three days using the HTG EdgeSeq Oncology Biomarker Panel. The scale of the vertical and horizontalaxes represent log 2 transformed, filtered probe counts. Extremely similar results were obtained, as demonstrated by the Pearson r-values above 0.96 for allcomparisons. We believe the HTG EdgeSeq platform and HTG EdgeSeq chemistry enables our customers to produce stable and reproducible molecularprofiles. Research and DevelopmentWe have committed, and expect to commit, significant resources to developing new technologies and products, improving product performance andreliability and reducing costs. We have assembled an experienced research and development team with the scientific, engineering, software and process talentthat we believe is required to successfully grow our business. As of December 31, 2016, our research and development team consisted of 21 employees acrossthe disciplines of research and development scientist, platform development and bioinformatics.As discussed in more detail above, in addition to an ongoing focus on the expansion of our profiling applications and test panel menu, in 2016 webegan the development of the next generation of our HTG EdgeSeq chemistry, or V2 chemistry, which will allow targeted, direct sequencing of RNA andDNA. Applications of the V2 chemistry are likely to include mutation detection, expressed mutation detection, expression measurements and co-detection ofRNA and DNA from FFPE tissue. 21We have also begun the development of our next generation Project JANUS instrument program. External development efforts for Project JANUS withInvetech PTY, Ltd. were temporarily put on hold in mid-2016, but are expected to resume in the near future as our V2 DNA chemistry matures.We incurred research and development expenses of $7.9 million and $4.6 million for the years ended December 31, 2016 and 2015, respectively.Sales and MarketingWe distribute our instruments and consumables via direct sales in the United States and Europe and also through distributors in parts of Europe andother countries. As of December 31, 2016, our U.S. sales and marketing organization consisted of 33 employees including 11 in direct sales or salesmanagement, 15 in sales support and seven in marketing. In addition to our direct sales team in the United States, as of December 31, 2016, we had threedirect sales and support employees in Europe and distribution agreements in several additional countries. This sales model provides us with direct salescoverage in the United Kingdom, France, Germany, Switzerland, Belgium and the Nordic countries, and distributors in Spain, Portugal, Italy and Israel. Our sales and marketing efforts are targeted at biopharmaceutical companies, clinical research centers and clinical diagnostic labs focused on sampleprofiling for translational research, biomarker/companion assay development and lab-developed diagnostic testing. We intend to promote adoption of ourHTG EdgeSeq system, sample profiling panels and future molecular diagnostic assays, upon marketing clearance or approval by FDA by expanding our U.S.sales force, building a greater direct sales presence in Europe, expanding international distribution, and continuing to collaborate with key opinion leaders tovalidate our platform and influence utilization of our products.The top two customers accounted for 29% and 12% of our revenue for the year ended December 31, 2016, compared with 38% and 7% for the yearended December 31, 2015. We derived 0% and 8% of our total revenue from grants and contracts primarily from one organization during the years endedDecember 31, 2016 and 2015, respectively.Manufacturing and SuppliersWe primarily perform manufacturing and final acceptance testing in house. External resources are leveraged for their specific expertise in eitherproducing components for our HTG Edge and HTG EdgeSeq instruments and raw materials for our consumables in accordance with our designs, or based ontheir catalog products which are utilized as is within our designs. We manufacture HTG Edge and HTG EdgeSeq instruments and reagent kits at our Tucson,Arizona facility, which has been certified to ISO 13485:2003 standards. We completed capital improvements in 2016, which created over 6,500 square feet ofdedicated manufacturing and operations space. We believe that our existing manufacturing capacity is sufficient to meet our needs at least for the nextseveral years.InstrumentsWe assemble our HTG Edge and HTG EdgeSeq instruments at our Tucson, Arizona facility. We have qualified an alternative third-party manufacturerfor our instruments and we believe additional instrument manufacturing alternatives would be available if necessary. Instrument component vendors arequalified and reviewed regularly to ensure that manufacturing standards are met and maintained. We award contracts for estimated annual quantities ofcomponents and, considering the replenishment lead times of our vendors, take delivery of batches covering approximately one month of demand at a time.ConsumablesWe assemble our HTG Edge and HTG EdgeSeq consumables at our Tucson, Arizona facility. Raw material vendors are selected using precisestandards, and are reviewed regularly for compliance with our specific quality requirements. We purchase raw material stock in quantities that often exceedprojected annual demand. We complete batches of finished goods approximating quarterly demand and supervise inventory on a minimum/maximum basisto ensure that we are replenishing our finished goods and raw material ahead of demand.22CompetitionWe have categorized known competition into: •Other molecular platform offerings such as PCR-based technologies, microarrays and next generation sequencers from companies such asAgilent Technologies, Inc., ArcherDx, Inc., BioRad Laboratories, Exiqon A/S, Fluidigm Corporation, Genomic Health, Roche Diagnostics, adivision of the Roche Group of companies, QIAGEN, Illumina, Inc., Abbott Molecular, Luminex Corporation, Affymetrix, Inc., NanoStringTechnologies, Inc. and Thermo Fisher Scientific, Inc. •Centralized CLIA labs offering molecular profiling and gene expression tests as laboratory-developed tests, or LDTs, such as FoundationMedicine, Inc., Trovagene, Inc., Guardant Health, Inc. and Genomic Health, Inc. •NGS target enrichment technologies from companies such as Agilent Technologies, Inc. •Decentralized CLIA labs developing LDTs locally such as major cancer centersWe believe that the principal competitive factors in all of our target markets include: •cost of capital equipment; •cost of consumables and supplies; •reputation among customers; •innovation in product offerings; •flexibility and ease-of-use; •accuracy and reproducibility of results; and •compatibility with existing laboratory processes, tools and methods.We believe that additional competitive factors specific to the diagnostics market include: •breadth of clinical decisions that can be influenced by information generated by tests; •volume, quality, and strength of clinical and analytical validation data; •availability of coverage and adequate reimbursement for testing services; and •economic benefit accrued to customers based on testing services enabled by productWe believe the automation afforded by our HTG EdgeSeq system coupled with fast turnaround time, high multiplexing capability, lysis only/noextraction protocol and low sample requirement gives us numerous competitive advantages in our target markets, as discussed in more detail elsewhere inthis Item 1.While we believe that we compete favorably based on the factors described above, many of our competitors are more highly capitalized and/or havebeen in existence for a longer period, and enjoy several competitive advantages over us, including: •Greater name and brand recognition, financial and human resources; •Broader product lines; •Larger sales forces and more established distributor networks; •Substantial intellectual property portfolios; •Larger and more established customer bases and relationships; and •Better established, larger scale and lower cost manufacturing capabilities.23Intellectual PropertyOur success depends in part on our ability to develop and maintain intellectual property rights relating to key aspects of the technology employed inour HTG Edge and HTG EdgeSeq platforms and assays, maintain any strategic licenses to use intellectual property owned by third parties, preserve theconfidentiality of our trade secrets and operate without infringing the valid and enforceable patents and other proprietary rights of third parties. We rely uponcertain patents, registered and common law trademarks, trade secrets, know-how, invention and patent assignment agreements and continuing technologicalinnovation to develop and maintain our competitive position. We intend to aggressively protect, defend and extend the intellectual property rights in ourtechnology.Patents and Patent ApplicationsAs of December 31, 2016, our patent portfolio included 13 patent families that, collectively, consisted of nine issued U.S. patents, 37 granted foreignpatents (variously in Australia, Canada, China, Japan, France, Germany, Italy, Spain, and United Kingdom), and 28 patent applications pending in the UnitedStates and foreign jurisdictions. This portfolio is directed to our nuclease-protection-based technologies as well as to lung cancer and melanoma biomarkerpanels and a DLBCL cell-of-origin classifier discovered using our nuclease-protection-based technology, which will help us maintain an exclusive positionin key areas of our business, including targeted nuclease-protection based sequencing, and, if we should so elect, may provide opportunities for out-licensingmelanoma, DLBCL, or lung-cancer-related content. There were two pending applications and 10 granted patents, including one U.S. patent, directed to ournovel HTG EdgeSeq methods in the portfolio as of December 31, 2016. The HTG EdgeSeq method patents will expire in April 2032. The portfolio alsoincluded two pending applications directed to our V2 HTG EdgeSeq methods as of December 31, 2016. Worldwide, as of December 31, 2016, we had 21patents in the two patent families directed to our HTG Edge plate-based methods; these patents will begin to expire at the end of December 2017 with the lastones expiring in June 2022.Agreements with Third PartiesAsset Purchase Agreement with NuvoGen Research, LLCWe entered an asset purchase agreement dated January 9, 2001, as amended in November 2003, September 2004, November 2012 and February 2014,with NuvoGen to acquire certain intellectual property from NuvoGen. The acquired technology generally relates to our array-based nuclease protectionpanels. Pursuant to the terms of the agreement, in exchange for the acquired technology, we initially paid NuvoGen 5,587 shares of our common stock, fixedpayments of $740,000 over the first two years of the agreement and agreed to pay NuvoGen 6% our yearly revenue, which would be applied to any fixedpayments, until the total aggregate cash compensation paid to NuvoGen under the agreement equals $15,000,000. Pursuant to the latest amendment to theagreement, through 2017, we are only required to pay a yearly fixed fee, in quarterly installments, to NuvoGen of $800,000, and may defer any accruedrevenue-based payments. Beginning in 2018, we are obligated to pay the greater of $400,000 or 6% of sales, plus amounts, if any, deferred in the 2017 periodby which 6% of revenue exceeds the applicable fixed fee plus 5% interest on such deferred amounts until the obligation is repaid in full. We paid our fixedfees for 2015 and the first quarter of 2016 in advance, and resumed making quarterly payments in April 2016. No revenue-based payments were deferred in2016.In a transaction related to the foregoing acquisition, NuvoGen also received a non-exclusive, royalty free license under the acquired technologypursuant to an agreement dated September 15, 2004. The license is limited to NuvoGen’s own internal service-oriented efforts and activities to accelerate thedevelopment of targeted drugs and other pharmaceutical compounds and agents as part of NuvoGen’s grant funded or other basic research and developmentof drugs intended for the treatment of cancer. Pursuant to the agreement, if NuvoGen produces revenue through the sale of cancer drugs developed throughuse of the license for entities other than for-profit and other commercial drug-research and development service ventures, NuvoGen will pay us a royalty inthe mid-single digit range percentage of such revenue for the quarter. This agreement may be terminated by either party in case of a breach by the other party,and we may terminate the agreement by giving written notice if NuvoGen files for bankruptcy or performs other similar actions.License Agreement with MerckIn connection with the investment by Merck Capital Ventures LLC in the Company, we granted to Merck Sharpe & Dohme, or Merck, pursuant to anagreement dated February 15, 2011, a non-exclusive, worldwide, royalty-free, non-sublicenseable (except to affiliates of Merck) license to certain of ourqNPA patent rights solely for Merck’s internal research and development purposes. We may terminate the agreement upon a breach of any material provisionof the agreement by Merck, if Merck has not cured such breach within 60 days after receiving written notice from us.24Loan and Security Agreement with Oxford Finance, LLC and Silicon Valley BankOn August 22, 2014, we entered a Loan and Security Agreement, or the Loan Agreement, with Oxford Finance LLC, or Oxford, as collateral agent, orin such capacity, Agent, and a lender and Silicon Valley Bank, as a lender, or SVB, and together with Oxford, the Lenders, providing for up to two separateterm loans in an aggregate principal amount of $16.0 million.We borrowed the initial term loan in the principal amount of $11.0 million, or Term Loan A, on August 22, 2014. Term Loan A bears interest at a fixedrate of 8.50% per annum. On or prior to June 30, 2015, the Loan Agreement allowed us to borrow one additional term loan, or Term Loan B, for up to $5.0million, subject to the satisfaction of certain borrowing conditions. We received the Term Loan A proceeds, net of a $320,000 original issue discount, with arequirement to pay a final payment of 3.75% of the total amount borrowed.In August 2015, the Company and its lenders amended the Loan Agreement to extend the availability of Term Loan B until March 31, 2016. Pursuantto the August 2015 amendment to the Loan Agreement, we made monthly interest-only payments until April 1, 2016. Following the interest-only paymentperiod, equal monthly payments consisting of principal and interest amortized over the remaining term of the loan through the September 1, 2018 maturitydate are due. The amendment also increased the final fee payment percentage to 4.75%. In February 2016, the Company notified its lenders, pursuant to therequirements of the amendment to the Loan Agreement, of its intention to draw the remaining $5.0 million available under Term Loan B. This additionalprincipal will be repaid evenly over the course of 30 months beginning April 1, 2016 and bears interest at a fixed rate of 8.75%. The final fee premiumrelating to Term Loan B of $237,500 is being amortized to interest expense, using the effective interest method, over the term of Term Loan B.We may prepay all, but not less than all, of the loaned amount plus accrued and unpaid interest thereon through the prepayment date with 15 days’notice to Oxford. In accordance with the August 2015 amendment, we will be obligated to pay a prepayment fee equal to (i) 2% of the principal amountrepaid if the loan is prepaid after the first anniversary but on or prior to the second anniversary of the August 2015 amendment and (ii) 1% of the principalamount repaid if the loan is repaid after the second anniversary of the August 2015 amendment and prior to maturity. We are not entitled to reborrow anyamounts of principal once such principal has been repaid. The agreement was again amended in June 2016 to modify the definitions of permittedindebtedness and permitted liens to provide for an increased maximum amount of permitted indebtedness, authorize a new category of permittedindebtedness and authorize a new category of permitted liens.While any amounts are outstanding under the credit facility, we are subject to several affirmative and restrictive covenants, including covenantsregarding delivery of financial statements, maintenance of inventory, payment of taxes, maintenance of insurance, dispositions of property, businesscombinations or acquisitions, incurrence of additional indebtedness and transactions with affiliates, among other customary covenants. We are also restrictedfrom paying cash dividends or making other distributions or payments on our capital stock except for repurchases of stock pursuant to employee stockpurchase plans, employee restricted stock agreements, stockholder rights plans, director or consultant stock option plans, or similar plans, provided suchrepurchases do not exceed $100,000 in the aggregate per fiscal year.We granted the Agent a security interest in our personal property to secure our obligations under the loan agreement. The security interest does notextend to patents, trademarks and other intellectual property rights (except for rights to payment related to the sale, licensing or disposition of suchintellectual property rights) or certain other specified property. If we default under our term loan, our lenders could foreclose on our assets, includingsubstantially all of our cash, which is held in accounts with our lenders.Upon the occurrence of certain events, including but not limited to the failure by us to satisfy our payment obligations under the loan agreement, thebreach of certain of our other covenants under the loan agreement, and the occurrence of a material adverse change, the Agent will have the right, amongother remedies, to declare all principal and interest immediately due and payable, and will have the right to receive the final payment fee and, if the paymentof principal and interest is due prior to maturity, a prepayment fee. The Agent also will have the right, among other remedies, to foreclose upon and/or sell orotherwise liquidate our personal property upon the occurrence of certain events.In connection with Term Loan A, we granted each of the Lenders warrants to purchase 1,256,281 shares of the Company’s Series E Preferred Stock atan exercise price of $0.2189 per share. The warrants are exercisable until August 22, 2024 and were automatically converted to warrants for common stockupon completion of our initial public offering, or IPO, in May 2015. In connection with the funding of Term Loan B, in March 2016, we issued Oxford acommon stock warrant exercisable for 45,307 shares of common stock at an exercise price of $2.759 per share, and the warrant previously issued to SVBautomatically became exercisable for an additional 5,317 shares of common stock at an exercise price of $23.51 per share in accordance with the LoanAgreement.25Development and Component Supply Agreement with Illumina, Inc.In October 2014, we entered a development and component supply agreement with Illumina, Inc., or Illumina, for the development and worldwidecommercialization by us of up to two complete diagnostic gene expression profiling tests for use with Illumina’s diagnostic instruments, using componentssupplied by Illumina. We refer to these diagnostic gene expression profiling tests as in vitro diagnostic, or IVD, test kits or assays. The IVD test kits may beused in two discrete testing fields chosen by us, one or both of which may relate to oncology for breast, lung, lymphoma or melanoma tumors, and up to oneof which may relate to transplant, chronic obstructive pulmonary disease, or immunology/autoimmunity. We provided notice to Illumina of our first testingselection during the quarter ended March 31, 2015. We are in discussions with Illumina regarding, among other things, a potential extension of the originalOctober 2016 deadline to select a second field.In the fourth quarter of 2015, we and Illumina agreed to a development plan for the development and regulatory approval of the selected IVD test kit,following which we paid Illumina a $100,000 fee. Illumina has agreed to provide development and regulatory support as part of the plan, which relates to ourHTG EdgeSeq ALKPlus Assay, now in development. We are also required to pay Illumina up to $1.0 million in the aggregate upon achievement of specifiedregulatory milestones relating to the IVD test kits. In addition, we have agreed to pay Illumina a single digit percentage royalty on net sales of any IVD testkits that we commercialize pursuant to the agreement. Ongoing research and development costs for these programs have been expensed as incurred.Pursuant to the agreement, we have agreed to obtain our requirements for certain components to be used in the development and/or commercializationof IVD test kits from Illumina. We and Illumina have also agreed to negotiate in good faith to enter into a supplemental supply agreement for the continuedpurchase and supply of the foregoing components.Absent earlier termination, the agreement will expire in October 2019 or on the date which the last to expire development plan under the agreement iscompleted, whichever is earlier. We may terminate the agreement at any time upon 90 days’ written notice and may terminate any development plan underthe agreement upon 30 days’ prior written notice. Illumina may terminate the agreement upon 30 days’ prior written notice if we undergo certain changes ofcontrol or immediately if we fail to select a testing field for an IVD test kit within 24 months following the date of the agreement. Either party may terminatethe agreement upon the other party’s material breach of the agreement that remains uncured for 30 days, or upon the other party’s bankruptcy.Authorization, Supply and Regulatory Authorization Agreement with Life Technologies CorporationIn March 2016, we entered an Authorization, Supply and Regulation Authorization Agreement with Life Technologies Corporation, or LTC, a whollyowned subsidiary of Thermo Fisher Scientific, Inc., for the development and worldwide commercialization by us of up to five RNA-based NGS panels, orHTG Assays, for use with LTC’s sequencing instruments and components supplied to end‑users by LTC.Pursuant to the agreement, we have agreed to obtain our requirements for certain components to be used in the development of HTG Assays from LTC.In March 2016, we purchased approximately $250,000 of LTC products and equipment in accordance with this agreement. LTC has agreed to providesupport in our efforts to obtain regulatory approval of the HTG Assays. We are required to pay LTC a milestone payment in the mid-six figure dollar rangeupon certain regulatory achievements for each HTG Assay. In addition, we have agreed to pay LTC a single digit percentage royalty on net sales of HTGAssays that we commercialize pursuant to the agreement. No milestone or royalty payments have been accrued or made pursuant to this agreement as ofDecember 31, 2016.Absent early termination, the initial term of the agreement will expire in March 2021 and thereafter will automatically renew for additional two yearperiods for as long as we continue to develop or sell HTG Assays, provided that neither party provides written notice of its election to terminate theagreement at least 60 days prior to expiration of the then-current term. Either party may terminate the agreement (a) upon the other party’s material breachthat remains uncured for 30 days, (b) upon the other party’s bankruptcy or (c) upon written notice in the event the party providing notice reasonablydetermines that continued performance under the agreement may violate any regulatory law, or any other applicable law or regulation or FDA guidance.Bristol-Myers Squibb AgreementIn May 2016, we entered into a Collaboration Agreement with Bristol-Myers Squibb, or BMS, for the development, in collaboration with BMS, of twocustom assays based on our HTG EdgeSeq technology. Following development of each custom assay, at BMS’s request, we may also perform sampleprocessing services using such custom assay(s) and/or supply the custom assay(s) to BMS or its third-party subcontractors. Additional custom assaydevelopment related to immuno-oncology research may be undertaken pursuant to the agreement in accordance with a mutually acceptable work plan, whichis incorporated by written amendment. 26BMS paid an initial non-refundable, non-creditable program set-up fee, and has agreed to pay an annual non-refundable, non-creditable projectmanagement fee in quarterly installments, as well as a fee for each custom assay developed. Each such fee was or is in the low six-figure range. At BMS’srequest, we will supply custom assay kits and perform sample processing services.The agreement will expire on May 11, 2019 or, if a project is then ongoing, the date of delivery of the final report for such project. Either party mayterminate the agreement upon the other party’s material breach or default in the performance of a material obligation under the agreement or if certainwarranties or representations are untrue in any material respect, either a Default, and such Default remains uncured for 60 days or such longer period if theDefault cannot be cured within 60 days. BMS may terminate a project upon 90 days’ prior written notice.Merck KGaA AgreementIn October 2016, we entered a Master CDx Agreement, or master agreement, with Merck KGaA, Darmstadt, Germany, or Merck KGaA to serve as thebasis for one or more project agreements to develop, seek regulatory approval for, and commercialize companion diagnostics for Merck KGaA drugcandidates and corresponding therapeutics. Concurrently, we entered into a first project agreement under the master agreement concerning our sequencing-based DLBCL cell of origin assay, or DLBCL Assay and Merck KGaA’s investigational drug, M7583, or Project.The Project has three stages aligned with timelines and outcomes of M7583 development. During stages 1 and 2, we will perform specified DLBCLAssay development activities. In stage 3, we will obtain applicable regulatory approvals on the DLBCL Assay and make it commercially available in theUnited States and certain other jurisdictions.Stages 2 and 3 each have an up-front payment, and all stages of the Project have milestone-based payments. We are eligible to receive up to a total of$9,900,000 over a period of approximately nine years in fixed or determinable contract consideration comprising up-front and milestone payments. Inaddition, during stages 1 and 2 of the Project, we will sell DLBCL Assay kits and/or perform sample processing services upon request of, and as instructed by,Merck KGaA.Merck KGaA may terminate the Project by providing 90 days’ prior written notice, at which point Merck KGaA will reimburse us for costs incurredduring the termination period, of an amount not to exceed non-cancellable, non-reimbursable expenses, and we will reimburse Merck KGaA for any costs thathave been prepaid without being incurred prior to termination. Further, either party may also terminate the agreement upon the other party’s material breachthat remains uncured for 45 days or upon the other party’s bankruptcy.QIAGEN AgreementIn November 2016, we entered a Master Assay Development, Commercialization and Manufacturing Agreement, or Governing Agreement, withQIAGEN Manchester Limited, or QML, a wholly owned subsidiary of QIAGEN N.V. The Governing Agreement creates a framework for the companies tocombine their technological and commercial strengths to offer biopharmaceutical companies a complete NGS-based solution for the development,manufacture and commercialization of companion diagnostic assays. Under the Governing Agreement, the parties will jointly seek companion diagnosticprograms with biopharmaceutical companies, QML will contract with interested biopharmaceutical companies for specified projects, each a Project, and thecompanies will enter into a statement of work under the Governing Agreement, which sets forth the rights and obligations of each party with respect to eachProject.The parties’ relationship under the Governing Agreement is exclusive in the oncology field. Such exclusivity in the oncology field may be lost andbecome non-exclusive if certain performance targets are not met. Projects may be undertaken in non-oncology fields at each party’s discretion on a non-exclusive basis. The companies will share net profits under each statement of work, based on whether development of particular assays under a statement of work areprimarily based on each company’s intellectual property. Each statement of work will provide additional financial terms for the corresponding Project, whichterms will depend on the respective development and/or commercialization activities of the parties.The Governing Agreement will continue for a five-year term. However, either party may terminate the agreement upon (i) the other party’s uncuredmaterial breach, bankruptcy or insolvency, (ii) specified events affecting all statements of work, or (iii) a change of control by either party. In the event aparty terminates the Governing Agreement for its own change of control, a $2.0 million termination payment will be payable to the non-terminating party.27Pursuant to a stock purchase agreement, entered concurrent with the Governing Agreement, QIAGEN North American Holdings, Inc., or QNAH,another wholly owned subsidiary of QIAGEN N.V., purchased 833,333 shares of our common stock on November 17, 2016 at $2.40 per share, for a totalpurchase price of $2.0 million. QNAH agreed to purchase up to an additional $2.0 million of our common stock (subject to any applicable limitations underthe rules of the NASDAQ Stock Market) upon the sale by the Company of at least $12.0 million of common or preferred stock in a financing transaction thatoccurs prior to May 16, 2017, or such other mutually agreeable date, or a Qualified Financing. The price per share payable by QNAH in a second tranchepurchase will be equal to the price per share at which shares are sold in a Qualified Financing.Trade SecretsWe also rely on trade secrets, including unpatented know-how, technology and other proprietary information to maintain our competitive position.We seek to protect these trade secrets, in part, by entering into nondisclosure and confidentiality agreements with parties who have access to them, such asour employees, corporate collaborators, outside scientific collaborators, contract manufacturers, consultants, advisors and other third parties. We also enterinto invention or patent assignment agreements with our employees and consultants that obligate them to assign to us any inventions developed in thecourse of their work for us. We cannot provide any assurance, however, that we have entered into such agreements with all relevant parties, or that theseparties will abide by the terms of these agreements. Despite measures taken to protect our intellectual property, unauthorized parties might copy orcommercially exploit aspects of our technology or obtain and use information that we regard as proprietary.For additional information relating to the risks associated with our intellectual property position see “Risk Factors – Risks Related to our IntellectualProperty.”Third-Party Coverage and ReimbursementClinical laboratories will acquire our instrumentation through a capital purchase, capital lease or reagent purchasing agreement. These laboratorieswill offer their customers a menu of testing services using our IVD test kits or their LDTs, which they may develop using components they purchase from us,or a combination of both. Our customers will generate revenue for these testing services by collecting payments from third-party payors, including public andprivate payors, as well as patient co-payments.United StatesIn the United States, our customers will utilize the existing reimbursement framework for testing services: Tier 1 and Tier 2 Molecular PathologyProceduresPrior to January 1, 2013, molecular pathology procedures were reimbursed using the 83890-83912 code series, commonly known as “stacking codes”,which were based on the various technical steps performed to produce a test result. The American Medical Association, or AMA, created the Tier 1 codes(81200-81383) and Tier 2 codes (81400-81408) to specifically identify the test being performed and as a replacement to stacking codes. The stacking codeswere deleted from the clinical laboratory fee schedule used by the Centers for Medicare and Medicaid Services, or CMS, for payment determination in 2013.Single analyte tests for mutations and gene rearrangements are described by these Tier 1 and Tier 2 codes; specific examples include 81235 for epidermalgrowth factor receptor, or EGFR, mutation analysis and 81401 for EML4/ALK rearrangement analysis. Single analyte tests not specifically called out in Tier1 or Tier 2 codes can be submitted for reimbursement consideration using the miscellaneous code 81479.Genomic Sequencing Procedures.The AMA created codes for Genomic Sequencing Procedures, or GSPs, and other Molecular Multianalyte Assays as part of its calendar year 2015update to the clinical laboratory fee schedule. AMA has since modified the GSP codes to clarify the definition to include DNA and RNA. Our customers mayuse these codes to seek reimbursement for diagnostic multi-analyte test offerings, such as: •Gene expression classifiers for hematolymphoid neoplasms, such as the determination of activated B-cell like, or ABC, or germinal center B-cell like, or GCB, subtypes of diffuse large B-cell lymphomas •Gene rearrangements in solid tumors and hematolymphoid neoplasms •Mutations in solid tumors and hematolymphoid neoplasmsPayments for Tier 1 and Tier 2 Molecular Pathology Procedures and GSPs may be sought from both public and private payors. Claims for Medicarecoverage are processed by private Medicare Administrative Contractors, or MACs, such as Novitas and Cahaba, and coverage for specific test codes arespecified in Local Coverage Determinations, or LCDs, issued by individual MACs or National Coverage Determinations, or NCDs, which apply to all MACs.Private payors issue their own coverage determinations that are largely28reflective of the CMS LCDs and NCDs. HTG closely monitors trends in coverage through interactions with customers, industry associations such as theCollege of American Pathologists, or CAP, and the Association for Molecular Pathology, or AMP, and industry consultants; these trends are keyconsiderations in our product development plans.Our customers may use our products, subject to regulatory limitations, to offer testing services that provide an analysis of 5‑50 genes as well as 51 ormore genes. In October 2014, CMS released its preliminary determinations regarding the method for determining 2015 payment rates for new codes under theclinical laboratory fee schedule. CMS recommended that payment rates for GSPs be determined through a process known as gapfill rather than bycrosswalking to allow CMS and its contractors to gather information about the manner in which the tests are performed and the resources necessary to providethem, so that ultimately CMS can set an appropriate payment rate for these tests. In the gapfill process, the local MACs determine the appropriate feeschedule amounts in the first year, and CMS calculates a national payment rate based on the median of these local fee schedule amounts in the second year.On September 27, 2015, gapfill pricing for CPTs 81445 and 81450 for the assessment of 5-50 genes in solid and liquid tumors, respectively, were set at $597and $648, respectively, and remains the same as of December 31, 2016. CPT 81455 for the assessment of 51 or more genes in solid and liquid tumors has notyet been priced. We believe that establishment of the aforementioned reimbursement codes specific to genomic sequencing procedures such as our clinical diagnostictests currently in development is an important factor in expanding access to our products. In addition, coverage and reimbursement of our clinical diagnostictests by government and private payors is essential to our commercial success. Accordingly, our strategy includes efforts to encourage third-party payors toestablish coverage, coding and payment that will facilitate access to our tests as we seek FDA approval for these tests and expand our commercializationefforts in the United States. Our success in these efforts depends in part on the extent to which governmental authorities, private health insurers and otherthird-party payors provide coverage for and establish adequate reimbursement levels for tests using our technology. Failure by our customers who use ourtests to obtain sufficient coverage and reimbursement from healthcare payors or adverse changes in government and private third-party payors’ policieswould have a material adverse effect on our business, financial condition, results of operations and future growth prospects.In addition to uncertainties surrounding coverage policies, there are periodic changes to reimbursement. Third-party payors regularly updatereimbursement amounts and from time to time revise the methodologies used to determine reimbursement amounts. This includes annual updates topayments made under the Clinical Laboratory Fee Schedule, or CLFS, with amounts assigned to the procedure billing codes used to report the specificlaboratory services. The CLFS sets the maximum amount payable under Medicare for each billing code. Payment under the CLFS has been limited from year-to-year by Congressional action such as imposition of national limitation amounts and freezes on the otherwise applicable annual consumer price indexupdates. In February 2012, the Middle-Class Tax Relief and Job Creation Act of 2012 was signed into law which, in part, reduced the potential future cost-based increases to the CLFS by 2%. The payment amounts under the CLFS are important not only for Medicare reimbursement, but also because althoughthere is no uniform policy of coverage and reimbursement amongst third-party payors, other third-party payors are often guided by the Medicare CLFS inestablishing reimbursement rates. For example, state Medicaid programs are prohibited from paying more than the Medicare fee schedule limit for clinicallaboratory services furnished to Medicaid recipients. Because of the anticipated reduction in the CLFS payment amounts, certain third party payors may alsoreduce reimbursement amounts.Beginning January 1, 2016, there will also be major changes to the payment formula under the CLFS. Under the Protecting Access to Medicare Act of2014, which was signed to law in April 2014, clinical laboratories must report laboratory test payment data for each Medicare-covered clinical diagnostic labtest that it furnishes during a time period to be defined by future regulations. The reported data must include the payment rate (reflecting all discounts,rebates, coupons and other price concessions) and the volume of each test that was paid by each private payor (including health insurance issuers, grouphealth plans, Medicare Advantage plans and Medicaid managed care organizations). Beginning in 2017, the Medicare payment rate for each clinicaldiagnostic lab test will be equal to the weighted median amount for the test from the most recent data collection period. The payment rate will apply tolaboratory tests furnished by a hospital laboratory if the test is separately paid under the hospital outpatient prospective payment system.Outside the United StatesOur target markets outside of the United States are Europe and Asia/Pacific. Our diagnostic product menu plans for Europe and Asia/Pacific consistprimarily of NGS‑based test kits that will satisfy existing or emerging testing demand, and we expect to be competing based on testing efficiency, quality andprice.In Europe, coverage for molecular diagnostic testing is varied. Countries with statutory health insurance (e.g., Germany, France, The Netherlands) tendto be more progressive in technology adoption with favorable reimbursement for molecular diagnostic testing. In countries such as the United Kingdom withtax-based insurance, adoption and reimbursement for molecular diagnostic testing is not uniform and is influenced by local budgets.29In Asia/Pacific, our commercial strategy is to opportunistically partner with distributors in countries with sufficient demand for our products to justifythe investment by both parties.Our diagnostic product menu plans for Europe and Asia/Pacific consist primarily of NGS-based test kits that will satisfy existing or emerging testingdemand, and we will be competing based on testing efficiency, quality and price. We plan to seek partners knowledgeable in local molecular diagnostictesting reimbursement practices and, working co‑operatively with such partners, prepare, to the extent feasible, favorable reimbursement treatment for ourdiagnostic products in the applicable Asia/Pacific markets. Preferably, such favorable reimbursement decisions will coincide with or precede the launch ofeach applicable diagnostic product.Failure by our ex-U.S. customers to obtain sufficient coverage and reimbursement for our diagnostic products from healthcare payors or adversechanges in government and private payors’ policies would have a material adverse effect on our ex-U.S. growth prospects and our overall business, financialcondition, and results of operations.Government Regulation – Medical Device RegulationsUnited StatesOur products and operations are subject to extensive and rigorous regulation by the FDA and other federal, state, local and foreign authorities.Currently we are limited to marketing our products for research use only, which means that we cannot make any diagnostic or clinical claims. However, weintend to seek regulatory clearances or approvals in the United States and other jurisdictions to market certain assays for diagnostic purposes. The clinicaldiagnostics under development by HTG are classified as “medical devices” under the United States Food, Drug and Cosmetic Act, or FDCA. The FDAregulates, among other things, the research, development, testing, manufacturing, approval, labeling, storage, recordkeeping, advertising, promotion andmarketing, distribution, post approval monitoring and reporting and import and export of medical devices in the United States to assure the safety andeffectiveness of such products for their intended use.Unless an exemption applies, each new or significantly modified medical device we seek to commercially distribute in the United States will requireeither a premarket notification to the FDA requesting permission for commercial distribution under Section 510(k) of the FDCA, also referred to as a 510(k)clearance, or approval from the FDA of a PMA application. Both the 510(k) clearance and PMA submission can be expensive, and lengthy, and requirepayment of significant user fees, unless an exemption is available.Device ClassificationUnder the FDCA, medical devices are classified into one of three classes – Class I, Class II or Class III – depending on the degree of risk associatedwith each medical device and the extent of control needed to provide reasonable assurances with respect to safety and effectiveness.Class I devices are those for which safety and effectiveness can be reasonably assured by adherence to a set of regulations, referred to as GeneralControls, which require compliance with the applicable portions of the FDA’s Quality System Regulation, or QSR, facility registration and product listing,reporting of adverse events and malfunctions, and appropriate, truthful and non-misleading labeling and promotional materials. Some Class I devices, alsocalled Class I reserved devices, also require premarket clearance by the FDA through the 510(k) premarket notification process described below. Most Class Iproducts are exempt from the premarket notification requirements.Class II devices are those that are subject to the General Controls, as well as Special Controls, which can include performance standards, guidelinesand post market surveillance. Most Class II devices are subject to premarket review and clearance by the FDA. Premarket review and clearance by the FDA forClass II devices is accomplished through the 510(k) premarket notification process. Under the 510(k) process, the manufacturer must submit to the FDA apremarket notification, demonstrating that the device is “substantially equivalent,” as defined in the statute, to either: •a device that was legally marketed prior to May 28, 1976, the date upon which the Medical Device Amendments of 1976 were enacted, or •another commercially available, similar device that was cleared through the 510(k) process.To be “substantially equivalent,” the proposed device must have the same intended use as the predicate device, and either have the sametechnological characteristics as the predicate device or have different technological characteristics and not raise different questions of safety or effectivenessthan the predicate device. Clinical data are sometimes required to support substantial equivalence.30After a 510(k) notice is submitted, the FDA determines whether to accept it for substantive review. If it lacks necessary information for substantivereview, the FDA will refuse to accept the 510(k) notification. If it is accepted for filing, the FDA begins a substantive review. By statute, the FDA is requiredto complete its review of a 510(k) notification within 90 days of receiving the 510(k) notification. As a practical matter, clearance often takes longer, andclearance is never assured. Although many 510(k) premarket notifications are cleared without clinical data, the FDA may require further information,including clinical data, to make a determination regarding substantial equivalence, which may significantly prolong the review process. If the FDA agreesthat the device is substantially equivalent, it will grant clearance to commercially market the device.After a device receives 510(k) clearance, any modification that could significantly affect its safety or effectiveness, or that would constitute a new ormajor change in its intended use, will require a new 510(k) clearance or, depending on the modification, could require a PMA application. The FDA requireseach manufacturer to make this determination initially, but the FDA can review any such decision and can disagree with a manufacturer’s determination. Ifthe FDA disagrees with a manufacturer’s determination regarding whether a new premarket submission is required for the modification of an existing device,the FDA can require the manufacturer to cease marketing and/or recall the modified device until 510(k) clearance or approval of a PMA application isobtained. If the FDA requires us to seek 510(k) clearance or approval of a PMA application for any modifications to a previously cleared product, we may berequired to cease marketing or recall the modified device until we obtain this clearance or approval. In addition, in these circumstances, we may be subject tosignificant regulatory fines or penalties for failure to submit the requisite PMA application(s). In addition, the FDA is currently evaluating the 510(k) processand may make substantial changes to industry requirements.The PMA ProcessIf the FDA determines that the device is not “substantially equivalent” to a predicate device, or if the device is classified into Class III, the devicesponsor must then fulfill the much more rigorous premarketing requirements of the PMA process, or seek reclassification of the device through the de novoprocess. A manufacturer can also submit a petition for direct de novo review if the manufacturer is unable to identify an appropriate predicate device and thenew device or new use of the device presents a moderate or low risk.Class III devices include devices deemed by the FDA to pose the greatest risk such as life-supporting or life-sustaining devices, or implantabledevices, in addition to those deemed not substantially equivalent following the 510(k) process. The safety and effectiveness of Class III devices cannot bereasonably assured solely by the General Controls and Special Controls described above. Therefore, these devices are subject to the PMA application process,which is generally costlier and time consuming than the 510(k) process. Through the PMA application process, the applicant must submit data andinformation demonstrating reasonable assurance of the safety and effectiveness of the device for its intended use to the FDA’s satisfaction. Accordingly, aPMA application typically includes, but is not limited to, extensive technical information regarding device design and development, pre-clinical and clinicalstudy data, manufacturing information, labeling and financial disclosure information for the clinical investigators in device studies. The PMA applicationmust provide valid scientific evidence that demonstrates to the FDA’s satisfaction reasonable assurance of the safety and effectiveness of the device for itsintended use.In the United States, absent certain limited exceptions, human clinical studies intended to support medical device clearance or approval require anInvestigational Device Exemption, or IDE, application. Some types of studies deemed to present “non-significant risk” are deemed to have an approved IDEonce certain requirements are addressed and Institutional Review Board approval is obtained. If the device presents a “significant risk” to human health, asdefined by the FDA, the sponsor must submit an IDE application to the FDA and obtain IDE approval prior to commencing the human clinical studies. TheIDE application must be supported by appropriate data, such as animal and laboratory testing results, showing that it is safe to test the device in humans andthat the testing protocol is scientifically sound. The IDE application must be approved in advance by the FDA for a specified number of subjects. Generally,clinical studies for a significant risk device may begin once the IDE application is approved by the FDA and the study protocol and informed consent areapproved by appropriate institutional review boards at the clinical study sites. There can be no assurance that submission of an IDE will result in the abilityto commence clinical studies, and although the FDA’s approval of an IDE allows clinical testing to go forward for a specified number of subjects, it does notbind the FDA to accept the results of the trial as sufficient to prove the product’s safety and efficacy, even if the trial meets its intended success criteria.Following receipt of a PMA application, the FDA conducts an administrative review to determine whether the application is sufficiently complete topermit a substantive review. If it is not, the agency will refuse to file the PMA. If the PMA application is determined to be sufficiently complete, the FDA willaccept the application for filing and begin the review. The FDA, by statute and by regulation, has 180 days to review a filed PMA application, although thereview of an application more often occurs over a significantly longer period. During this review period, the FDA may request additional information orclarification of information already provided, and the FDA may issue a major deficiency letter to the applicant, requesting the applicant’s response todeficiencies communicated by the FDA. The FDA considers a PMA or PMA supplement to have been voluntarily withdrawn if an applicant fails to respond toan FDA request for information (e.g. major deficiency letter) within a total of 360 days. Before approving or denying a31PMA, an FDA advisory panel may be convened to review the PMA and provide the FDA with the committee’s recommendation on whether the FDA shouldapprove the submission, approve it with specific conditions, or not approve it. This advisory panel may also involve a public meeting if FDA determinespublic input is required. Prior to approval of a PMA, the FDA may conduct a bioresearch monitoring inspection of the clinical study data and clinical studysites, and a QSR inspection of the manufacturing facility and processes. Overall, the FDA review of a PMA application generally takes between one and threeyears, but may take significantly longer. The FDA can delay, limit or deny approval of a PMA application for many reasons, including: •the device may not be shown safe or effective to the FDA’s satisfaction; •the data from pre-clinical studies and clinical studies may be insufficient to support approval; •the manufacturing process or facilities may not meet applicable requirements; and •changes in FDA approval policies or adoption of new regulations may require additional data.If the FDA evaluation of a PMA is favorable, the FDA will issue either an approval letter, or an approvable letter, which usually contains severalconditions that must be met in order to secure final approval of the PMA. When and if those conditions have been fulfilled to the satisfaction of the FDA, theagency will issue a PMA letter authorizing commercial marketing of the device, subject to the conditions of approval and the limitations established in theapproval letter. If the FDA’s evaluation of a PMA application or manufacturing facilities is not favorable, the FDA will deny approval of the PMA or issue anot approvable letter. The FDA also may determine that additional analytical studies or clinical studies are necessary, in which case approval of the PMAsubmission may be delayed for several months or years while the analytical studies and/or trials are conducted and data are submitted in an amendment to thePMA. The PMA process can be expensive, uncertain and lengthy and a number of devices for which FDA approval has been sought by other companies havenever been approved by the FDA for marketing.New PMA applications or PMA supplements may be required for modification to the manufacturing process, labeling, device specifications, materialsor design of a device that has been approved through the PMA process. PMA supplements often require submission of the same type of information as aninitial PMA application, except that the supplement is limited to information needed to support any changes from the device covered by the approved PMAapplication and may or may not require as extensive technical or clinical data or the convening of an advisory panel, depending on the nature of theproposed change.In approving a PMA application, the FDA may also require some form of post market studies or post market surveillance, whereby the applicantfollows certain patient groups for several years and makes periodic reports to the FDA on the clinical status of those patients when necessary to protect thepublic health or to provide additional safety and effectiveness data for the device. FDA may also require post market surveillance for certain devices clearedunder a 510(k) notification, such as implants or life-supporting or life-sustaining devices used outside a device user facility. The FDA may also approve aPMA application with other post-approval conditions intended to ensure the safety and effectiveness of the device, such as, among other things, restrictionson labeling, promotion, sale, distribution and use.Post-Approval RequirementsAfter the FDA permits a device to enter commercial distribution, numerous regulatory requirements apply. These include, but are not limited to: •the registration and listing regulation, which requires manufacturers to register all manufacturing facilities and list all medical devices placedinto commercial distribution; •the QSR, which requires manufacturers, including third party manufacturers, to follow elaborate design, testing, production, control,supplier/contractor selection, complaint handling, documentation and other quality assurance procedures during the manufacturing process; •labeling regulations and unique device identification requirements; •advertising and promotion requirements; •restrictions on sale, distribution or use of a device; •PMA annual reporting requirements; •the FDA’s general prohibition against promoting products for unapproved or “off-label” uses; •the Medical Device Reporting, or MDR, regulation, which requires that manufacturers report to the FDA if their device may have caused orcontributed to a death or serious injury or malfunctioned in a way that would likely cause or contribute to a death or serious injury if it were toreoccur;32 •medical device correction and removal reporting regulations, which require that manufacturers report to the FDA field corrections and productrecalls or removals if undertaken to reduce a risk to health posed by the device or to remedy a violation of the FDCA that may present a risk tohealth; •recall requirements, including a mandatory recall if there is a reasonable probability that the device would cause serious adverse healthconsequences or death; •an order of repair, replacement or refund; •device tracking requirements; and •post approval study and post market surveillance requirements.Our facilities, records and manufacturing processes are subject to periodic unscheduled inspections by the FDA. Failure to comply with the applicableUnited States medical device regulatory requirements could result in, among other things, warning letters, untitled letters, fines, injunctions, consent decrees,civil penalties, unanticipated expenditures, repairs, replacements, refunds, recalls or seizures of products, operating restrictions, total or partial suspension ofproduction, the FDA’s refusal to issue certificates to foreign governments needed to export products for sale in other countries, the FDA’s refusal to grantfuture premarket clearances or approvals, withdrawals or suspensions of current product clearances or approvals and criminal prosecution.Research Use OnlyA research use only, or RUO, product is one that is not intended for clinical diagnostic use and must be labeled “For Research Use Only. Not for use indiagnostic procedures.” Products that are intended for research use only and are properly labeled as RUO are exempt from compliance with the FDArequirements discussed above, including the approval or clearance and QSR requirements. A product labeled RUO but intended to be used diagnosticallymay be viewed by the FDA as adulterated and misbranded under the FDC Act and is subject to FDA enforcement activities. The FDA may consider thetotality of the circumstances surrounding distribution and use of an RUO product, including how the product is marketed, when determining its intended use.European UnionThe European Union, or EU, has also adopted requirements that affect our products. These requirements include establishing standards that addresscreating a certified quality system as well as several directives that address specific product areas. The most significant of these directives is the In VitroDiagnostic Medical Device Directive, or IVDD, which includes: •Essential Requirements. The IVDD specifies “essential requirements” that all medical devices must meet. The requirements are similar to thoseadopted by the FDA relating to quality systems and product labeling. •Conformity Assessment. Unlike United States regulations, which require virtually all devices to undergo some level of premarket review by theFDA, the IVDD currently allows manufacturers to bring many devices to market using a process in which the manufacturer certifies that thedevice conforms to the essential requirements for that device. A small number of products must go through a more formal pre-market reviewprocess. Devices that comply with the requirements of a relevant directive will be entitled to bear the CE conformity marking, indicating thatthe device conforms to the essential requirements of the applicable directives and, accordingly, can be marketed throughout the EU andEuropean Economic Area. •Vigilance. The IVDD also specifies requirements for post market reporting similar to those adopted by the FDA.Other InternationalSeveral other countries, including Australia, Canada, China and Japan, have adopted or are in the process of adopting standards for medical devicessold in those countries. Many of these standards are loosely patterned after those adopted by the European Union, but with elements unique to each country.Although there is a trend towards harmonization of quality system standards, regulations in each country may vary substantially, which can affect timelinesof introduction. We routinely monitor these developments and address compliance with the various country requirements as new standards are adopted.Government Regulation – Fraud and Abuse and Other Healthcare RegulationWe may be subject to various federal and state healthcare laws, including, but not limited to, anti-kickback laws. Penalties for violations of thesehealthcare laws include, but are not limited to, criminal, civil and/or administrative penalties, damages, fines, disgorgement, individual imprisonment,possible exclusion from Medicare, Medicaid and other federal healthcare programs,33additional reporting requirements and/or oversight if we become subject to a corporate integrity agreement or similar agreement to resolve allegations of non-compliance with these laws and the curtailment or restructuring of operations.Federal Anti-Kickback StatuteThe Federal Anti-Kickback Statute prohibits persons or entities from knowingly and willfully soliciting, offering, receiving or paying anyremuneration, directly or indirectly, overtly or covertly, in cash or in kind, in exchange for or to induce either the referral of an individual, or the furnishing,arranging for or recommending a good or service, or for the purchasing, leasing, ordering, or arranging for or recommending, any good, facility, service oritem for which payment may be made in whole or in part under federal healthcare programs, such as the Medicare and Medicaid programs. The Federal Anti-Kickback Statute is broad and prohibits many arrangements and practices that are lawful in businesses outside of the healthcare industry. The term“remuneration” expressly includes kickbacks, bribes, or rebates and has been broadly interpreted to include anything of value, including for example, gifts,discounts, the furnishing of supplies or equipment, credit arrangements, payments of cash, waivers of payments, ownership interests and providing anythingat less than its fair market value.There are several statutory exceptions and regulatory safe harbors protecting certain business arrangements from prosecution under the Federal Anti-Kickback Statute. These statutory exceptions and safe harbors set forth provisions that, if all their applicable requirements are met, will assure healthcareproviders and other parties that they may not be prosecuted under the Federal Anti-Kickback Statute. The failure of a transaction or arrangement to fitprecisely within one or more applicable statutory exceptions or safe harbors does not necessarily mean that it is illegal or that prosecution will be pursued.However, conduct and business arrangements that do not fully satisfy all requirements of an applicable safe harbor may result in increased scrutiny bygovernment enforcement authorities and will be evaluated on a case-by-case basis based on a cumulative review of all of its facts and circumstances.Additionally, the intent standard under the Federal Anti-Kickback Statute was amended under the Patient Protection and Affordable Care Act, as amended bythe Health Care and Education Reconciliation Act, collectively, the ACA, to a stricter standard such that a person or entity no longer needs to have actualknowledge of the statute or specific intent to violate it in order to have committed a violation. Further, the intent to induce referrals need only be “onepurpose” of the remuneration for violations of the Federal Anti-Kickback Statute. The ACA provides that the government may assert that a claim includingitems or services resulting from a violation of the Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the federal civil False ClaimsAct which is discussed below.Federal Civil False Claims ActThe federal civil False Claims Act prohibits, among other things, persons or entities from knowingly presenting or causing to be presented a false orfraudulent claim to, or the knowing use of false statements to obtain payment from or approval by the Federal Government. Suits filed under the federal civilFalse Claims Act, known as “qui tam” actions, can be brought by any individual on behalf of the government. These individuals, sometimes known as“relators” or, more commonly, as “whistleblowers”, may share in any amounts paid by the entity to the government in fines or settlement. The number offilings of qui tam actions has increased significantly in recent years, causing more healthcare companies to have to defend a case brought under the federalcivil False Claim Act. If an entity is determined to have violated the federal civil False Claims Act, it may be required to pay up to three times the actualdamages sustained by the government, plus civil penalties for each separate false claim. Many comparable state laws are broader in scope and apply to allpayors, and therefore, are not limited to only those claims submitted to the Federal Government.Federal Physician Self-Referral ProhibitionWe are also subject to the federal physician self-referral prohibitions, commonly known as the Stark Law, which prohibits, among other things,physicians who have a financial relationship, including an investment, ownership or compensation relationship with an entity, from referring Medicare andMedicaid patients to the entity for designated health services, which include clinical laboratory services, unless an exception applies. Similarly, entities maynot bill Medicare, Medicaid or any other party for services furnished pursuant to a prohibited referral. Many states have their own self-referral laws as well,which in some cases apply to all third-party payors, not just Medicare and Medicaid.Federal Civil Monetary Penalties StatuteThe Federal Civil Monetary Penalties Statute, among other things, imposes fines against any person or entity who is determined to have presented, orcaused to be presented, claims to a federal healthcare program that the person knows, or should know, is for an item or service that was not provided asclaimed or is false or fraudulent.34Health Insurance Portability and Accountability Act of 1996The Federal Health Insurance Portability and Accountability Act, or HIPAA, created several additional federal crimes, including healthcare fraud andfalse statements relating to healthcare matters. The healthcare fraud statute prohibits knowingly and willfully executing a scheme to defraud any healthcarebenefit program, including private third-party payors. The false statements statute prohibits knowingly and willfully falsifying, concealing or covering up amaterial fact or making any materially false, fictitious or fraudulent statement in connection with the delivery of or payment for healthcare benefits, items orservices.In addition, HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act, or HITECH, and their implementingregulations established uniform standards for certain covered entities, which are certain healthcare providers, health plans and healthcare clearinghouses, aswell as their business associates that perform services for them that involve the creation, use, maintenance or disclosure of, individually identifiable healthinformation, governing the conduct of specified electronic healthcare transactions and protecting the security and privacy of protected health information.Among other things, HITECH also created four new tiers of civil monetary penalties and gave state attorneys general new authority to file civil actions fordamages or injunctions in federal courts to enforce federal HIPAA laws and seek attorneys’ fees and costs associated with pursuing federal civil actions.The Federal Physician Payments Sunshine ActThe Federal Physician Payments Sunshine Act requires certain manufacturers of drugs, devices, biologics and medical supplies for which payment isavailable under Medicare, Medicaid or the Children’s Health Insurance Program, with certain exceptions, to report annually to CMS, information related to“payments or other transfers of value” provided to physicians (defined to include doctors, dentists, optometrists, podiatrists and chiropractors) and teachinghospitals, and applicable manufacturers and group purchasing organizations to report annually to CMS ownership and investment interests held byphysicians, as defined above, and their immediate family members. Failure to submit timely, accurately and completely the required information for allpayments, transfers of value and ownership or investment interests may result in civil monetary penalties of up to an aggregate of $150,000 per year and up toan aggregate of $1.0 million per year for “knowing failures.”State Law EquivalentsMany states have also adopted laws similar to each of the above federal laws, such as anti-kickback and false claims laws, which may be broader inscope and apply to items or services reimbursed by any third-party payor, including commercial insurers, as well as laws that restrict our marketing activitieswith health care professionals and entities, and require us to track and report payments and other transfers of value, including consulting fees, provided tohealthcare professionals and entities. Some states mandate implementation of compliance programs to ensure compliance with these laws. We also are subjectto foreign fraud and abuse laws, which vary by country. We may be subject to certain state and foreign laws governing the privacy and security of healthinformation in some circumstances, many of which differ from each other in significant ways and often are not preempted by HIPAA, thus complicatingcompliance efforts.Healthcare ReformIn March 2010, President Obama enacted the ACA, which is substantially changing healthcare financing and delivery by both governmental andprivate insurers, and is significantly impacting the medical device industry. The ACA’s provisions of importance to our business include, but are not limitedto, a deductible 2.3% excise tax on any entity that manufactures or imports medical devices offered for sale in the United States, with limited exceptions,which became effective January 1, 2013. However, the Consolidated Appropriations Act of 2016, signed into law in December 2015, includes a two-yearmoratorium on the medical device excise tax that applies between January 1, 2016 and December 31, 2017. Absent further legislative action, the tax will beautomatically reinstated for medical device sales beginning January 1, 2018.Since its enactment in 2010, there have been judicial and Congressional challenges to certain aspects of the ACA. In January 2017, President Trumpsigned an Executive Order directing federal agencies with authorities and responsibilities under the ACA to waive, defer, grant exemptions from, or delay theimplementation of any provision of the ACA that would impose a fiscal or regulatory burden on states, individuals, healthcare providers, health insurers, ormanufacturers of pharmaceuticals or medical devices. In January 2017, Congress also voted to adopt a budget resolution for fiscal year 2017, or the BudgetResolution, that authorizes the implementation of legislation that would repeal portions of the ACA. Following the passage of the Budget Resolution, inMarch 2017, the U.S. House of Representatives introduced legislation known as the American Health Care Act, which, if enacted, would amend or repealsignificant portions of the ACA. Among other changes, the American Health Care Act would repeal the annual fee on certain brand prescription drugs andbiologics imposed on manufacturers and importers, eliminate the 2.3% excise tax on medical devices, eliminate penalties on individuals and employers thatfail to maintain or provide minimum essential coverage, and create refundable tax credits to assist individuals in buying health insurance. The AmericanHealth Care Act would also make significant changes to35Medicaid by, among other things, making Medicaid expansion optional for states, repealing the requirement that state Medicaid plans provide the sameessential health benefits that are required by plans available on the exchanges, modifying federal funding, including implementing a per capita cap onfederal payments to states, and changing certain eligibility requirements.In addition, other legislative changes have been proposed and adopted since the ACA was enacted. On August 2, 2011, President Obama signed intolaw the Budget Control Act of 2011, which, among other things, created the Joint Select Committee on Deficit Reduction to recommend to Congressproposals in spending reductions. The Joint Select Committee did not achieve a targeted deficit reduction of at least $1.2 trillion for the years 2013 through2021, triggering the legislation’s automatic reduction to several government programs. This includes reductions to Medicare payments to providers of2% per fiscal year, which went into effect on April 1, 2013, and, following passage of the Bipartisan Budget Act of 2015, will stay in effect through 2025unless Congressional action is taken. On January 2, 2013, President Obama signed into law the American Taxpayer Relief Act of 2012, which, among otherthings, further reduced Medicare payments to several providers, including hospitals, imaging centers and cancer treatment centers and increased the statute oflimitations period for the government to recover overpayments to providers from three to five years.The full impact of the ACA, its possible repeal, and any legislation passed to replace the ACE, as well as other laws and reform measures that may beproposed and adopted in the future, remains uncertain, but may continue the downward pressure on medical device pricing, especially under the Medicareprogram, and may also increase our regulatory burdens and operating costs, which could have a material adverse effect on our business operations.The Foreign Corrupt Practices ActThe Foreign Corrupt Practices Act, or FCPA, prohibits any U.S. individual or business from paying, offering, or authorizing payment or offering ofanything of value, directly or indirectly, to any foreign official, political party or candidate for the purpose of influencing any act or decision of the foreignentity to assist the individual or business in obtaining or retaining business. The FCPA also obligates companies whose securities are listed in the UnitedStates to comply with accounting provisions requiring the company to maintain books and records that accurately and fairly reflect all transactions of thecorporation, including international subsidiaries, and to devise and maintain an adequate system of internal accounting controls for international operations.EmployeesAs of December 31, 2016, we had 82 full-time and 3 part-time employees, of which 10 are employed in administration, 13 in manufacturing andoperations, 21 in research and development, five in regulatory and quality affairs, and 36 in sales and marketing. We had three employees in Europe as ofDecember 31, 2016, all others were in the United States. We believe that our success will depend, in part, on our ability to attract and retain qualifiedpersonnel. We have never experienced a work stoppage due to labor difficulties and believe that our relations with our employees are good. None of our U.S.employees are represented by labor unions. Collective bargaining is established by law in France and Germany. We and our European employees, who residein France and Germany, have agreed to the terms of the applicable collective bargaining agreements.Our ability to retain current talent and recruit new people into our Company is another critical factor in our performance. We have initiated multipleprograms to promote our organizational culture and to identify the best possible new talent as the organization grows and new positions are made available.In 2016, we launched our five company value statements: embrace the mission, engage, build community, expect healthy tension and assume positive intent.We also adopted a cultural index tool which assesses new hire candidates for cultural fit and to encourage teamwork among existing employees.Corporate InformationWe were originally incorporated in Arizona in October 1997 as “High Throughput Genomics, Inc.” In December 2000, we reincorporated in Delawareas “HTG, Inc.” and in March 2011 we changed our name to “HTG Molecular Diagnostics, Inc.” Our principal executive offices are located at 3430 E. GlobalLoop, Tucson, AZ 85706, and our telephone number is (877) 289-2615. Our corporate website address is www.htgmolecular.com. Information contained onor accessible through our website is not a part of this report, and the inclusion of our website address in this report is an inactive textual reference only.This report contains references to our trademarks, including VERI/O, HTG Edge and HTG EdgeSeq, and to trademarks belonging to other entities.Solely for convenience, trademarks and trade names referred to in this report, including logos, artwork and other visual displays, may appear withoutthe ® or TM symbols, but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rightsor the rights of the applicable licensor to these trademarks and trade names. We do not intend our use or display of other companies’ trade names ortrademarks to imply a relationship with, or endorsement or sponsorship of us by, any other companies.36We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012. We will remain an emerging growth companyuntil the earlier of (1) the last day of the fiscal year (a) following the fifth anniversary of the completion of our IPO in May 2015, (b) in which we have totalannual gross revenue of at least $1.0 billion, or (c) in which we are deemed to be a large accelerated filer, which means the market value of our common stockthat is held by non-affiliates exceeded $700.0 million as of the prior June 30th, and (2) the date on which we have issued more than $1.0 billion in non-convertible debt during the prior three-year period. We refer to the Jumpstart Our Business Startups Act of 2012 in this Annual Report on Form 10-K as the“JOBS Act,” and references to “emerging growth company” have the meaning associated with it in the JOBS Act.Item 1A. Risk Factors.An investment in shares of our common stock involves a high degree of risk. You should carefully consider the following risk factors, as well as theother information in this report, and in our other public filings, before deciding to purchase, hold or sell shares of our common stock. The occurrence of anyof the following risks could have a material adverse effect on our business, financial condition, results of operations and future growth prospects or causeour actual results to differ materially from those contained in forward-looking statements we have made in this report and those we may make from time totime. In these circumstances, the market price of our common stock could decline, and you may lose all or part of your investment. You should consider all ofthe risk factors described when evaluating our business. Risks Related to our Business and StrategyWe have incurred losses since our inception and expect to incur losses for the foreseeable future. We cannot be certain that we will achieve or sustainprofitability.We have incurred losses since our inception and expect to incur losses in the future. We incurred net losses of $26.0 million and $21.4 million for theyears ended December 31, 2016 and 2015, respectively. As of December 31, 2016, we had an accumulated deficit of $115.6 million. We expect that ourlosses will continue for the foreseeable future as we will be required to invest significant additional funds to support product development, includingdevelopment of our next generation instrument platforms, development of our new HTG EdgeSeq panels, including our initial IVD assay, and thecommercialization of our HTG EdgeSeq system and proprietary consumables. We also expect that our selling, general and administrative expenses willcontinue to increase due to the additional costs associated with market development activities, expanding our staff to sell and support our products, and theincreased administrative costs associated with being a public company. Our ability to achieve or, if achieved, sustain profitability is based on numerousfactors, many of which are beyond our control, including the market acceptance of our products, competitive product development and our marketpenetration and margins. We may never be able to generate sufficient revenue to achieve or, if achieved, sustain profitability.We might not be able to continue as a going concern absent our ability to raise additional equity or debt capital. Even if capital is available, it might beavailable only on unfavorable terms.This Annual Report on Form 10-K for the year ended December 31, 2016, includes disclosures regarding management’s assessment of its ability tocontinue as a going concern and a report from our independent auditors that includes an explanatory paragraph regarding going concern, as our currentliquidity position and recurring losses from operations since inception and negative cash flows from operating activities raise substantial doubt about ourability to continue as a going concern. We have had recurring operating losses and negative cash flows from operations since inception, and we have anaccumulated deficit of approximately $115.6 million as of December 31, 2016. As of December 31, 2016, we had cash, cash equivalents and investments inshort term available-for-sale securities of approximately $11.8 million, and had current liabilities of approximately $10.0 million plus an additional $14.0million in long-term liabilities primarily attributable to our growth term loan and NuvoGen obligation. We believe that our existing cash resources will besufficient to fund our planned operations and expenditures until mid-way through the second quarter of 2017. However, we cannot provide assurances thatour plans will not change or that changed circumstances will not result in the depletion of our capital resources more rapidly than we currently anticipate. To date, to fund our operations and develop and commercialize our products, we have relied primarily on equity and debt financings and revenuegenerated from the sale of our HTG Edge and HTG EdgeSeq systems, the sale of our proprietary consumables and related services. We will need to raiseadditional capital to fund our continued operations until our revenue reaches a level sufficient to provide for self-sustaining cash flows, if ever. There can beno assurance that additional capital will be available to us when needed or on acceptable terms, or that our revenue will reach a level sufficient to provide forself-sustaining cash flows. If we are unable to raise additional capital in the future when required or in sufficient amounts or on terms acceptable to us, we mayhave to delay, scale back or discontinue one or more product development programs, curtail our commercialization activities, significantly reduce expenses,sell assets (potentially at a discount to their fair value or carrying value), enter into relationships with third parties to develop or commercialize products ortechnologies that we otherwise would have sought to develop or commercialize independently, cease operations altogether, pursue an acquisition of ourcompany at a price that may result in up to a total loss on investment for our stockholders, file for bankruptcy or seek other protection from creditors, orliquidate all of our assets. In addition, if we default under37our term loan agreement, our lenders could foreclose on our assets, including substantially all of our cash which is held in accounts with our lenders.Even if capital is available, it might be available only on unfavorable terms. Any additional equity or convertible debt financing into which we entercould be dilutive to our existing stockholders. Any future debt financing into which we enter may impose covenants upon us that restrict our operations,including limitations on our ability to incur liens or additional debt, pay dividends, repurchase our stock, make certain investments and engage in certainmerger, consolidation or asset sale transactions. Any debt financing or additional equity that we raise may contain terms that are not favorable to us or ourstockholders. If we raise additional funds through collaboration and licensing arrangements with third parties, it may be necessary to relinquish some rightsto our technologies or our products, or grant licenses on terms that are not favorable to us.If we obtain additional financing to fund our business activities in the future and there remains doubt about our ability to continue as a going concern,investors or other financing sources may be unwilling to provide additional funding on commercially reasonable terms or at all. If we are unable to continueas a going concern, holders of our common stock or other securities may lose the entire value of their investment.Payments under the instruments governing our indebtedness may reduce our working capital. In addition, a default under our term loan agreement couldcause a material adverse effect on our financial position.In August 2014, we entered into a $16.0 million term loan agreement with Oxford Finance LLC and Silicon Valley Bank, who we collectively refer toas the lenders. Under the terms of the term loan agreement, the lenders initially provided us with a term loan of $11.0 million. In March 2016, we borrowedthe remaining $5.0 million pursuant to the term loan agreement. The loan is secured by a lien covering substantially all of our assets, excluding patents,trademarks and other intellectual property rights (except for rights to payment related to the sale, licensing or disposition of such intellectual property rights)and certain other specified property. The interest-only payment period expired in April 2016, and we are currently required to make monthly principal andinterest payments through September 2018. Payments under the term loan agreement could result in a significant reduction of our working capital, which inturn could significantly impact our need to raise additional capital in order to continue as a going concern. As of December 31, 2016, we had $11.8 millionoutstanding under the term loan agreement, of which amount $6.4 million is scheduled to become due and payable over the 12 months following such date,compared to cash, cash equivalents and investments in short term available‑for‑sale securities of approximately $11.8 million. If we default under our termloan agreement, our lenders could foreclose on our assets, including substantially all of our cash, which is held in accounts with our lenders. Pursuant to the terms of an asset purchase agreement with NuvoGen Research, LLC, or NuvoGen, pursuant to which we acquired certain intellectualproperty, we agreed to pay NuvoGen the greater of $400,000 or 6% of our yearly revenue until the total aggregate cash compensation paid to NuvoGen underthe agreement equals $15.0 million. For fiscal years 2013 to 2017, NuvoGen agreed to accept annual fixed fees in the range of $425,000 to $800,000, paid inquarterly installments, and to defer the balance of any revenue-based payments. To date, we have paid NuvoGen approximately $6.3 million. We paid annualfixed fees of $575,000 and $725,000 for 2015 and 2016, respectively. As of December 31, 2016, we have not deferred any revenue-based payments. For2017, our annual fixed fee payable to NuvoGen is $800,000, payable in quarterly installments. Beginning in 2018, we are again obligated to pay the greaterof $400,000 or 6% of our annual revenue plus amounts, if any, deferred in the 2017 period by which 6% of revenue exceeds the $800,000 fixed fee plus 5%interest on any such deferred amounts until the obligation is repaid in full. Payments to NuvoGen could result in a significant reduction in our workingcapital.Our term loan agreement requires us, and any debt arrangements we may enter into in the future may require us, to comply with various covenants thatlimit our ability to, among other things: •dispose of assets; •complete mergers or acquisitions; •incur indebtedness; •encumber assets; •pay dividends or make other distributions to holders of our capital stock; •make specified investments; •change certain key management personnel; and •engage in transactions with our affiliates. 38These restrictions could inhibit our ability to pursue our business strategies. If we default under our obligations under the term loan agreement, thelenders could proceed against the collateral granted to them to secure our indebtedness or declare all obligation under the term loan agreement to be due andpayable. In certain circumstances, procedures by the lenders could result in a loss by us of all of our equipment and inventory, which are included in thecollateral granted to the lenders. If any indebtedness under the term loan agreement were to be accelerated, there can be no assurance that our assets would besufficient to repay in full that indebtedness. In addition, upon any distribution of assets pursuant to any liquidation, insolvency, dissolution, reorganizationor similar proceeding, the holders of secured indebtedness will be entitled to receive payment in full from the proceeds of the collateral securing our securedindebtedness before the holders of other indebtedness or our common stock will be entitled to receive any distribution with respect thereto.We may incur additional indebtedness in the future. The debt instruments governing such indebtedness may contain provisions that are as, or more,restrictive than the provisions governing our existing indebtedness under the term loan agreement. If we are unable to repay, refinance or restructure ourindebtedness when payment is due, the lenders could proceed against the collateral granted to them to secure such indebtedness or force us into bankruptcyor liquidation.Our HTG EdgeSeq product portfolio requires the use of NGS instrumentation and reagents and could be adversely affected by actions of third party NGSproduct manufacturers over whom we have no control.A key element of our strategy is to establish our HTG EdgeSeq system as the best sample and library preparation method for clinical applications ofnext generation sequencers. We depend at least in part on the availability of NGS instrumentation and reagents, and the ability of our HTG EdgeSeq productsto operate seamlessly with NGS instrumentation. Any significant interruption or delay in the ability of our HTG EdgeSeq products to operate on or with NGSinstrumentation could reduce demand for our products and result in a loss of customers.Our reputation, and our ability to continue to establish or develop our technology for clinical applications of next generation sequencers, aredependent upon the availability of NGS instrumentation and the reliable performance of our products with NGS instrumentation. We are not able to controlthe providers of NGS instrumentation, which increases our vulnerability to interoperability problems with the products that they provide. For example,providers of NGS instruments may discontinue existing products, or introduce new NGS instrumentation products with little or no notice to us. This maycause some of our products not to be operable with one or more NGS instruments or may adversely affect regulatory approvals of our future IVD HTGEdgeSeq products, potentially for extended periods of time. Any interruption in the ability of our products to operate on NGS instruments could harm ourreputation or decrease market acceptance of our products, and our business, financial condition and operating results may be materially and adverselyaffected. We also could experience additional expense in developing new products or changes to existing products to meet developments in NGSinstrumentation, and our business, financial condition and operating results may be materially and adversely affected.Current medical device regulation in the United States and other jurisdictions requires manufacturers of IVD molecular profiling tests that use NGSdetection, referred to as NGS IVD tests, to include in regulatory submissions, technical information about the NGS products that are required for performanceof, but are not supplied with, the NGS IVD test. These regulatory agencies also require that the NGS instrumentation have “locked” software for the detectionof the NGS IVD test results. Thus, to obtain regulatory approval for NGS IVD tests, manufacturers like us, currently must have arrangements with NGS productmanufacturers to gain access to technical information and NGS instrument software. We currently have agreements with two NGS product manufacturers thatgrant us rights to develop, manufacture and sell up to six future HTG EdgeSeq NGS IVD tests in specified fields, subject to, among other things, the NGSproduct manufacturers’ rights to terminate such agreements and discontinue products or implement product design changes that could adversely affect ourHTG EdgeSeq NGS IVD tests. There can be no assurance that our agreements with these NGS product manufacturers, or any future NGS product manufacturersthat we contract with, will not be terminated earlier than we currently expect, that an NGS product manufacturer will perform its contractual duties to us, orthat we will otherwise receive the benefits we anticipate receiving under those agreements. In addition, if regulatory agencies do not change theirrequirements for NGS IVD test approval or clearance and the NGS instrument manufacturers close their systems to third party NGS IVD test development (ingeneral or with specific NGS IVD test manufacturers) and we are not able to maintain or enforce our agreements with such manufacturers, we may not be ableto meet our commercial goals and our business, financial condition and operating results may be materially and adversely affected.39The development of future products is dependent on new methods and/or technologies that we may not be successful in developing.We are planning to expand our product offerings in the fields of detecting RNA fusions and other gene rearrangements and DNA mutations, such asexpressed DNA mutations. We believe we have successfully demonstrated proof of concept that our technology is able to detect these fusions and expressedDNA mutations, but to date our work in this area has only been on a very small scale or may not have the specificity required for certain applications. Wecannot guarantee that we will be able to successfully develop these applications on a commercial scale. If we are unsuccessful at developing additionalapplications involving RNA fusions or DNA mutations, we may be limited in the breadth of additional products we can offer in the future, which couldimpact our future revenues and profits.We have initiated development of a new version of our HTG EdgeSeq system that will target the lower-volume throughput lab market. Thisdevelopment program, which we refer to as Project JANUS, is expected to increase our addressable market by enabling efficient molecular profiling of smallerquantity batches of samples. This program involves the development of new chemistry that is not currently compatible with our existing HTG Edge or HTGEdgeSeq platforms. We have temporarily suspended the development of this program in favor of other high value projects that we expect to provide greatershort term benefits, and if we are unable to resume or successfully develop this new version of our HTG EdgeSeq system and on the timeframe we anticipate,our addressable market could be limited, which could harm our business, results of operations and financial condition. We may not be able to develop new products or enhance the capabilities of our systems to keep pace with rapidly changing technology and customerrequirements, which could have a material adverse effect on our business and operating results.Our success depends on our ability to develop new products and applications for our technology in existing and new markets, while improving theperformance and cost-effectiveness of our systems. New technologies, techniques or products could emerge that might offer better combinations of price andperformance than our current or future products and systems. Existing or future markets for our products, including gene expression analysis, liquid-basedspecimen analysis (e.g., plasma, blood and urine) and single-cell analysis, as well as potential markets for our diagnostic product candidates, are characterizedby rapid technological change and innovation. It is critical to our success that we anticipate changes in technology and customer requirements andsuccessfully introduce new, enhanced and competitive technologies to meet our customers’ and prospective customers’ needs on a timely and cost-effectivebasis. At the same time, however, we must carefully manage the introduction of new products. If customers believe that such products will offer enhancedfeatures or be sold for a more attractive price, they may delay purchases until such products are available. We may also have excess or obsolete inventory ofolder products as we transition to new products and our experience in managing product transitions is very limited. If we do not successfully innovate andintroduce new technology into our product lines or effectively manage the transitions to new product offerings, our revenues and results of operations will beadversely impacted.Competitors may respond more quickly and effectively than we do to new or changing opportunities, technologies, standards or customerrequirements. We anticipate that we will face increased competition in the future as existing companies and competitors develop new or improved productsand as new companies enter the market with new technologies.If we do not successfully manage the development and launch of new products, our financial results could be adversely affected.We face risks associated with launching new products and with undertaking to comply with regulatory requirements for certain of our products. If weencounter development or manufacturing challenges or discover errors during our product development cycle, the product launch date(s) may be delayed.The expenses or losses associated with unsuccessful product development or launch activities or lack of market acceptance of our new products couldadversely affect our business or financial condition.If we do not achieve, sustain or successfully manage our anticipated growth, our business and growth prospects will be harmed.Our current personnel, systems and facilities may not be adequate to support our business plan and future growth. Our need to effectively manage ouroperations, growth and various projects requires that we, among other things: •continue to improve our operational, financial, management and regulatory compliance controls and reporting systems and procedures; •attract and retain sufficient numbers of talented employees; •manage our commercialization activities effectively and in a cost-effective manner; •manage our relationship with third parties related to the commercialization of our products; and •manage our development efforts effectively while carrying out our contractual obligations to contractors and other third parties.40Moreover, growth will place significant strains on our management and our operational and financial systems and processes. For example, expandedmarket penetration of our HTG EdgeSeq system and related proprietary panels, and future development and approval of diagnostic products, are key elementsof our growth strategy that will require us to hire and retain additional sales and marketing, regulatory, manufacturing and quality assurance personnel. If wedo not successfully forecast the timing and cost of the development of new panels and diagnostic products, the regulatory clearance or approval for productmarketing of any future diagnostic products or the demand and commercialization costs of such products, or manage our anticipated expenses accordingly,our operating results will be harmed.Our future success is dependent upon our ability to expand our customer base and introduce new applications.Our current customer base is primarily composed of biopharmaceutical companies, academic institutions and molecular labs that perform analysesusing our HTG Edge or HTG EdgeSeq systems and consumables for research use only, which means that they may not be used for clinical diagnosticpurposes. In July 2016, we obtained CE marking in Europe for our HTG EdgeSeq system and HTG EdgeSeq DLBCL Cell of Origin Assay, which means thatthese products may be used for diagnostic purposes in Europe. Our success will depend, in part, upon our ability to increase our market penetration amongour customer base and to expand our market by developing and marketing new clinical diagnostic tests and research-use-only applications, and to introducediagnostic products into clinical laboratories in the United States and other jurisdictions after obtaining the requisite regulatory clearances or approvals. Wemay not be able to successfully complete development of or commercialize any of our planned future tests and applications. To achieve these goals, we willneed to conduct substantial research and development, conduct clinical validation studies, expend significant funds, expand and scale-up our research anddevelopment and manufacturing processes and facilities, expand and train our sales force; and seek and obtain regulatory clearance or approvals of our newtests and applications, as required by applicable regulations. Additionally, we must demonstrate to laboratory directors, physicians and third-party payorsthat our current and any future diagnostic products are effective in obtaining clinically relevant information that can inform treatment decisions, and that ourHTG EdgeSeq systems and related panels can enable an equivalent or superior approach than other available technology. Furthermore, we expect that acombination of increasing the installed base of our HTG EdgeSeq systems and entering into additional service and custom assay development agreementswith biopharmaceutical customers will drive increased demand for our relatively high margin panels. If we are not able to successfully increase our installedbase and biopharmaceutical customer relationships, then sales of our panels, sample processing services to be performed by our VERI/O laboratory and ourmargins for these revenue items may not meet expectations. Attracting new customers and introducing new panels requires substantial time and expense. Anyfailure to expand our existing customer base, or launch new panels or diagnostic products, would adversely affect our ability to improve our operating results.Our financial results may vary significantly from quarter to quarter or may fall below the expectations of investors or securities analysts, each of whichmay adversely affect our stock price.Investors should consider our business and prospects considering the risks and difficulties we expect to encounter in the new, uncertain and rapidlyevolving markets in which we compete. Because these markets are new and evolving, predicting their future growth and size is difficult. We expect that ourvisibility into future sales of our products, including volumes, prices and product mix between instruments, consumables and services, will continue to belimited and could result in unexpected fluctuations in our quarterly and annual operating results.Numerous other factors, many of which are outside our control, may cause or contribute to significant fluctuations in our quarterly and annualoperating results. For example, two customers accounted for 29% and 12% of our revenue for the year ended December 31, 2016 and two customersaccounted for 38% and 7% for the year ended December 31, 2015. If orders from our top customers are reduced or discontinued, our revenue in future periodsmay materially decrease. Fluctuations in our operating results may make financial planning and forecasting difficult. In addition, these fluctuations mayresult in unanticipated decreases in our available cash, which could negatively affect our business and prospects. Factors that may contribute to fluctuationsin our operating results include many of the risks described under the caption “Risk Factors – Risks Related to Our Business and Strategy” of this report. Inaddition, one or more of such factors may cause our revenue or operating expenses in one period to be disproportionately higher or lower relative to theothers. Our products involve a significant capital commitment from our customers or may depend on customer studies that have variable or indefinitetimelines, and accordingly involve a lengthy sales cycle. We may expend significant effort in attempting to make a particular sale, which may be deferred bythe customer or never occur. Accordingly, comparing our operating results on a period-to-period basis may not be meaningful, and investors should not relyon our past results as an indication of our future performance. If such fluctuations occur or if our operating results deviate from our expectations or theexpectations of investors or securities analysts, our stock price may be adversely affected.Our sales cycle is lengthy and variable, which makes it difficult for us to forecast revenue and other operating results.Our sales process involves numerous interactions with multiple individuals within any given organization, and often includes in-depth analysis bypotential customers of our products (where in some instances we will provide a demonstration unit for their use and41evaluation), performance of proof-of-principle studies, preparation of extensive documentation and a lengthy review process. As a result of these factors, thecapital investment required in purchasing our instruments and the budget cycles of our customers, the time from initial contact with a customer to our receiptof a purchase order can vary significantly and be up to 12 months or longer. Given the length and uncertainty of our sales cycle, we have in the pastexperienced, and likely will in the future experience, fluctuations in our instrument sales or service revenues on a period-to-period basis. In addition, anyfailure to meet customer expectations could result in customers choosing to retain their existing systems or service providers or to purchase systems orservices other than ours.If the utility of our HTG EdgeSeq system, proprietary profiling panels, services and solutions in development is not supported by studies published in peer-reviewed medical publications, the rate of adoption of our current and future products and the rate of reimbursement of our future products by third-partypayors may be negatively affected.We anticipate that we will need to maintain a continuing presence in peer-reviewed publications to promote adoption of our products bybiopharmaceutical companies, academic institutions and molecular labs and to promote favorable coverage and reimbursement decisions. We believe thatpeer-reviewed journal articles that provide evidence of the utility of our current and future products or the technology underlying the HTG EdgeSeq system,consumables and services are important to our commercial success. It is critical to the success of our sales efforts that we educate a sufficient number ofclinicians and administrators about our HTG EdgeSeq system, our current panels and services and our future solutions, and demonstrate the research andclinical benefits of these solutions. Our customers may not adopt our current and future solutions, and third-party payors may not cover or adequatelyreimburse our future products, unless they determine, based on published peer-reviewed journal articles and the experience of other researchers andclinicians, that our products provide accurate, reliable, useful and cost-effective information. Peer-reviewed publications regarding our products andsolutions may be limited by many factors, including delays in the completion of, poor design of, or lack of compelling data from studies that would be thesubject of the article. If our current and future solutions or the technology underlying our HTG EdgeSeq platform, our current panels and services or ourfuture solutions do not receive sufficient favorable exposure in peer-reviewed publications, the rate of research and clinician adoption and positive coverageand reimbursement decisions could be negatively affected.We provide our HTG Edge and HTG EdgeSeq systems and profiling panels free of charge or through other arrangements to customers or key opinionleaders through evaluation agreements or reagent rental programs, and these programs may not be successful in generating recurring revenue from salesof our systems and proprietary panels.We sell our HTG Edge and HTG EdgeSeq systems and profiling panels under different arrangements to expand our installed base and facilitate theadoption of our platform.In some instances, we provide equipment free of charge under evaluation agreements for a limited period of time to permit the user to evaluate thesystem for their purposes in anticipation of a decision to purchase the system. We retain title to the equipment under such arrangements unless a decision topurchase is made, and in most cases, require evaluation customers to purchase a minimum quantity of consumables during the evaluation period.When we place a system under a reagent rental agreement, we install equipment in the customer’s facility without a fee and the customer agrees topurchase consumable products at a stated priced over the term of the agreement. While some of these agreements did not historically contain a minimumpurchase requirement, we have included a minimum purchase requirement in all reagent rental agreements in 2015 and 2016, and will continue to do so inthe future. We retain title to the equipment and such title is transferred to the customer at no additional charge at the end of the initial arrangement. The costof the instrument under the agreement is expected to be recovered in the fees charged for consumables, to the extent sold, over the term of the agreement.Other arrangements might include a collaboration agreement whereby an academic or a commercial collaborator agrees to provide samples free ofcharge in exchange for the use of a HTG Edge and/or HTG EdgeSeq system at no cost in furtherance of a research or clinical project.Any of the foregoing arrangements could result in lost revenues and profit and potentially harm our long-term goal of achieving profitable operations.In addition, despite the fact we require customers who receive systems we continue to own to carry insurance sufficient to protect us against any equipmentlosses, we cannot guarantee that they will maintain such coverage, which may expose us to a loss of the value of the equipment in the event of any loss ordamage.There are instances where we provide our systems to key opinion leaders free of charge, to gather data and publish the results of their research to assistour marketing efforts. We have no control over some of the work being performed by these key opinion leaders, or whether the results will be satisfactory. It ispossible that the key opinion leader may generate data that is unsatisfactory and could potentially harm our marketing efforts. In addition, customers mayfrom time to time create negative publicity about their experience with our systems, which could harm our reputation and negatively affect market perceptionand adoption of our platform.42Placing our HTG Edge and HTG EdgeSeq systems under evaluation agreements, under reagent rental agreements or with our key opinion leaderswithout receiving payment for the instruments could require substantial additional working capital to provide additional units for sale to our customers.A significant amount of our inventory consists of instruments held by prospective customers who are evaluating our products and may not be converted torevenue on the timeframe that we anticipate or at all.As of December 31, 2016, approximately $186,000 of our inventory consisted of HTG EdgeSeq instruments held by customers who are evaluating andtesting our HTG EdgeSeq products. If these prospective customers do not adopt our products within the time periods that we estimate, or at all, then we willnot be able to convert the inventory held by these customers into revenues. If we are unable to sell this inventory to other customers or if it becomes obsoleteas we introduce and expand the customer base for our HTG EdgeSeq system, we may be required to write off a significant portion of this inventory.Our strategy of developing companion diagnostic products may require large investments in working capital and may not generate any revenues.A key component of our strategy is the development of companion diagnostic products designed to determine the appropriate patient population foradministration of a particular therapeutic to more successfully treat a variety of illnesses. Successfully developing a companion diagnostic product dependsboth on regulatory approval for administration of the therapeutic, as well as regulatory approval of the diagnostic product. Even if we are successful indeveloping products that would be useful as companion diagnostic products, and potentially receive regulatory approval for such products, thebiopharmaceutical companies that develop the corresponding therapeutics may ultimately be unsuccessful in obtaining regulatory approval for any suchtherapeutic, or, even if successful, select a competing technology to use in their regulatory submission instead of ours. The development of companiondiagnostic products requires a significant investment of working capital which may not result in any future income. This could require us to raise additionalfunds which could dilute our current investors, or could impact our ability to continue our operations in the future.Our current business depends on levels of research and development spending by academic and governmental research institutions and biopharmaceuticalcompanies, a reduction in which could limit demand for our products and adversely affect our business and operating results.Our revenue is currently derived from sales of our HTG Edge and HTG EdgeSeq systems, proprietary panels, and the development of custom assaysand sample processing for biopharmaceutical companies, academic institutions and molecular labs worldwide for research applications. The demand for ourproducts and services will depend in part upon the research and development budgets of these customers, which are impacted by factors beyond our control,such as: •changes in government programs that provide funding to research institutions and companies; •macroeconomic conditions and the political climate; •changes in the regulatory environment; •differences in budgetary cycles; •market-driven pressures to consolidate operations and reduce costs; and •market acceptance of relatively new technologies, such as ours.We believe that any uncertainty regarding the availability of research funding may adversely affect our operating results and may adversely affectsales to customers or potential customers that rely on government funding. In addition, academic, governmental and other research institutions that fundresearch and development activities may be subject to stringent budgetary constraints that could result in spending reductions, reduced allocations or budgetcutbacks, which could jeopardize the ability of these customers to purchase our products. Our operating results may fluctuate substantially due to reductionsand delays in research and development expenditures by these customers. Any decrease in our customers’ budgets or expenditures, or in the size, scope orfrequency of capital or operating expenditures, could materially and adversely affect our business, operating results and financial condition.We have limited experience in marketing and selling our products, and if we are unable to successfully commercialize our products, our business may beadversely affected.We have limited experience marketing and selling our products. Our HTG Edge system was introduced for sale in the life sciences research market inthe third quarter of 2013. Our HTG EdgeSeq chemistry was introduced for sale in the life sciences research market in the third quarter of 2014. Our dedicatedHTG EdgeSeq system was introduced for sale in the life sciences research43market in the fourth quarter of 2015. Our VERI/O service laboratory was announced in June 2016. We currently market our products through our own salesforce in the United States and Europe, and have distributors in parts of Europe, the Middle East and Asia. In the future, we intend to expand our sales andsupport team in the United States, continue to build a direct sales and support team in Europe and establish additional distributor and/or third party contractsales team relationships in other parts of the world. However, we may not be able to market and sell our products effectively. Our sales of life science researchproducts and potential future diagnostic products will depend in large part on our ability to successfully increase the scope of our marketing efforts andestablish and maintain a sales force commensurate with our then applicable markets. Because we have limited experience in marketing and selling ourproducts in the life science research market and in marketing and selling our products in the diagnostic market, our ability to forecast demand, theinfrastructure required to support such demand and the sales cycle to customers is unproven. If we do not build an efficient and effective sales force anddistributor relationships targeting these markets, our business and operating results will be adversely affected.If we do not obtain regulatory clearance or approval to market our products for diagnostic purposes, we will be limited to marketing our products forresearch use only. In addition, if regulatory limitations are placed on our diagnostic products our business and growth will be harmed.In many jurisdictions, including the United States, we are currently limited to marketing all or some of our HTG Edge and HTG EdgeSeq systems andproprietary profiling panels for research use only, which means that we cannot make any diagnostic or clinical claims for those products in thosejurisdictions. We have sought and intend to continue to seek regulatory clearances or approvals in the United States and other jurisdictions to market certainpanels for diagnostic purposes; however, we may not be successful in doing so.The FDA regulates diagnostic kits sold and distributed through interstate commerce in the United States as medical devices. Unless an exemptionapplies, generally, before a new medical device may be sold or distributed in the United States, or may be marketed for a new use in the United States, themedical device must receive either FDA clearance of a 510(k) pre-market notification or pre-market approval. Thus, before we can market or distribute ourprofiling panels, including our mRNA and miRNA panels, as IVD kits for use by clinical testing laboratories in the United States, we must first obtain pre-market clearance or pre-market approval from the FDA. Even if or when we apply for clearance or approval from the FDA for any of our products, the processcan be lengthy and unpredictable. We are working collaboratively with multiple biopharmaceutical companies to clinically validate ourHTG EdgeSeq DLBCL Cell of Origin Assay, which we believe can classify DLBCL as either ABC or GCB subtype and detect the expression of additionaldrug-linked gene targets such as PD-1, PD-L1 and CD19. We expect to submit the DLBCL assay for U.S. regulatory clearances or approvals at some futuretime if and when our work with the biopharmaceutical companies reaches an appropriate stage. We initiated a modular submission process to obtain FDAapproval of our HTG EdgeSeq ALKPlus Assay to detect certain gene fusions in lung cancer. Pending the outcome of clinical studies, we expect to completethe FDA submission for the HTG EdgeSeq ALKPlus Assay in 2017. We cannot provide any assurances that our clinical studies or collaborations withbiopharmaceutical companies will have the desired outcomes or that we will meet the regulatory clearance or approval timelines for either product. Further,even if we complete the requisite clinical validations and submit an application, we may not receive FDA clearance or approval for the commercial use of ourtests on a timely basis, or at all. If we are unable to obtain regulatory clearance or approval, or if clinical diagnostic laboratories do not accept our cleared orapproved tests, our ability to grow our business could be compromised.Similarly, foreign countries have either implemented or are in the process of implementing increased regulatory controls that require that we submitapplications for review and approval by foreign regulatory bodies. We obtained the right to CE mark the HTG EdgeSeq DLBCL Cell of Origin Assay and theHTG EdgeSeq ALKPlus Assay for sale as an IVD in Europe, in July 2016 and March 2017, respectively. Once we do apply for the HTG EdgeSeq ALKPlusAssay or any other product, we may not receive ex-U.S. approval for the commercial use of our tests on a timely basis, or at all. If we are unable to achieveappropriate ex-U.S. approvals, or if clinical diagnostic laboratories outside the United States do not accept our tests, our ability to grow our business outsideof the United States could be compromised.44Clinical studies of any product candidate that we intend to market as an IVD kit may not be successful. If we are unable to successfully complete non-clinical and clinical studies of our product candidates or experience significant delays in doing so, our business will be materially harmed.Our clinical diagnostic business prospects in the United States and other applicable jurisdictions will depend on our ability to successfully completeclinical studies for product candidates that we intend to market as IVD kits. A failure of one or more clinical studies can occur at any stage of testing. Theoutcome of non-clinical studies may not be predictive of the success of clinical studies, and interim results, if any, of a clinical study do not necessarilypredict final results. Moreover, non-clinical and clinical data are often susceptible to varying interpretations and analyses, and many companies that havebelieved their product candidates performed satisfactorily in non-clinical and clinical studies have nonetheless failed to obtain pre-marketing clearance orapproval for their products. Completion of clinical studies, announcement of results of the studies and our ability to obtain regulatory approvals could bedelayed for a variety of reasons, including: •unsatisfactory results of any clinical study, including failure to meet study objectives; •the failure of our principal third-party investigators to perform our clinical studies on our anticipated schedules; •imposition of a clinical hold following an inspection of our clinical study operations or trial sites by the FDA or other regulatory authorities; •our inability to adhere to clinical study requirements directly or with third parties, such as contract research organizations; •different interpretations of our non-clinical and clinical data, which could initially lead to inconclusive results; and •delays in obtaining suitable patient samples for use in a trial;Our development costs will increase if we have material delays in any clinical study or if we need to perform more or larger clinical studies thanplanned. If the delays are significant, or if any of our products do not prove to be equivalent to a predicate device or safe or effective, as applicable, or do notreceive required regulatory approvals, our financial results and the commercial prospects for our product candidates will be harmed. Furthermore, ourinability to complete our clinical studies in a timely manner could jeopardize our ability to obtain regulatory approval.If our HTG EdgeSeq systems and proprietary profiling panels fail to achieve and sustain sufficient market acceptance, or we are not able to continue toexpand our service relationships with biopharmaceutical customers, we will not generate expected revenue, and our prospects may be harmed.We are currently focused on selling our HTG EdgeSeq systems and profiling panels within the life sciences research market. We plan to developpanels for many different disease states including companion diagnostics to determine the proper course of treatment for those diseases. We may experiencereluctance, or refusal, on the part of physicians to order, and third-party payors to cover and provide adequate reimbursement for, our panels if the results ofour research and clinical studies, and our sales and marketing activities relating to communication of these results, do not convey to physicians, third-partypayors and patients that the HTG EdgeSeq systems and related profiling panels provide equivalent or better diagnostic information than other availabletechnologies and methodologies. We believe our panels represent an emerging methodology in diagnosing disease states, and we may have to overcomeresistance among physicians to adopting it for the marketing of our products to be successful. Even if we are able to obtain regulatory approval from the FDA,the use of our panels may not become the standard diagnostic tool for those diseases on which we plan to focus our efforts. A portion of our strategy is todevelop diagnostic tools in conjunction with biopharmaceutical companies to help assess the proper course of treatment for specific diseases, and to performsample processing and analysis services for biopharmaceutical customers through our VERI/O laboratory. Even if we are successful in developing thosediagnostic tools and receive regulatory approval, we still may not be successful in marketing those diagnostic tests. Furthermore, our biopharmaceuticalpartners may choose alternative diagnostic tests to market with their products instead of ours which could limit our diagnostic test sales and revenues.As part of our current business model, we intend to seek to enter into strategic collaborations and licensing arrangements with third parties to developdiagnostic tests.We have relied, and expect to continue to rely, on strategic collaborations and licensing agreements with third parties to develop or in-licensetechnologies based on which we develop profiling panels. We have entered into agreements with third parties to facilitate or enable our development ofassays, and ultimately diagnostic tests, to aid in the diagnosis of immuno-oncology, breast-related disorders, melanoma and other diseases. We intend to enterinto additional similar agreements with life sciences companies, biopharmaceutical companies and other researchers for future diagnostic products. However,we cannot guarantee that we will enter into any additional agreements. In particular, our life sciences research or biopharmaceutical customers are notobligated to collaborate with us or license technology to us, and they may choose to develop diagnostic products themselves or collaborate with ourcompetitors. Establishing collaborations and licensing arrangements is difficult and time-consuming. Discussions may not lead to45collaborations or licenses on favorable terms, or at all. Potential collaborators or licensors may elect not to work with us based upon their assessment of ourfinancial, regulatory or intellectual property position. To the extent that we enter new collaboration or licensing agreements, they may never result in thesuccessful development or commercialization of future tests or other products for a variety of reasons, including because our collaborators may not succeed inperforming their obligations or may choose not to cooperate with us. We cannot control the amount and timing of our collaborators’ resources that will bedevoted to performing their responsibilities under our agreements with them. Moreover, to the extent we agree to work exclusively with a party in a givenarea, our opportunities to collaborate with others would be limited. Even if we establish new relationships, they may never result in the successfuldevelopment or commercialization of future tests or other products. Disputes with our collaborators could also impair our reputation or result in developmentdelays, decreased revenues and litigation expenses.Our research and development efforts will be hindered if we are not able to contract with third parties for access to archival patient samples.Our future development of products for clinical indications will require access to archival patient samples for which data relevant to the clinicalindication of interest is known. We rely on our ability to secure access to these archived patient samples, including FFPE tissue, plasma, serum, whole bloodpreserved in PAX gene, or various cytology preparations, together with the information pertaining to the clinical outcomes of the patients from which thesamples were taken. Owners or custodians of relevant samples may be difficult to identify and/or identified samples may be of poor quality or limited innumber or amount. Additionally, others compete with us for access to these samples for both research and commercial purposes. Even when an appropriatecohort of samples is identified, the process of negotiating access to these samples can be lengthy because it typically involves numerous parties and approvallevels to resolve complex issues such as usage rights, institutional review board approval, privacy rights, publication rights, and intellectual propertyownership. In addition, in some instances the cost to acquire samples can be prohibitively expensive. If we are not able to negotiate access to archived patientsamples on a timely basis and on acceptable terms, or at all, or if our competitors or others secure access to these samples before us, our ability to research,develop and commercialize future products will be limited or delayed.The life sciences research and diagnostic markets are highly competitive. We face competition from enhanced or alternative technologies and products,which could render our products and/or technologies obsolete. If we fail to compete effectively, our business and operating results will suffer.We face significant competition in the life sciences research and diagnostics markets. We currently compete with both established and early-stage lifesciences research companies that design, manufacture and market instruments and consumables for gene expression analysis, liquid-based specimen analysis(e.g., plasma, blood and urine), single-cell analysis, PCR, digital PCR, other nucleic acid detection and additional applications. These companies use well-established laboratory techniques such as microarrays or quantitative PCR, or qPCR, as well as newer technologies such as next generation sequencing. Webelieve our principal competitors in the life sciences research market are Agilent Technologies, Inc., ArcherDx, Inc., BioRad Laboratories, Exiqon A/S,Fluidigm Corporation, Foundation Medicine, Inc., Genomic Health, Illumina, Inc., Abbott Molecular, Luminex Corporation, Affymetrix, Inc., NanoStringTechnologies, Inc., entities owned and controlled by QIAGEN, Roche Diagnostics, a division of the Roche Group of companies, and Thermo FisherScientific, Inc. In addition, there are several other market entrants in the process of developing novel technologies for the life sciences market, includingcompanies such as WaferGen Bio-Systems, Inc. One or more of our competitors could develop a product that is superior to a product we offer or intend tooffer or our technology and products may be rendered obsolete or uneconomical by advances in existing technologies.Within the diagnostic market, there are competitors that manufacture systems for sales to hospitals and laboratories and other competitors that offertests conducted through CLIA laboratories. We will also compete with commercial diagnostics companies. Most of our current competitors are either publiclytraded, or are divisions of publicly traded companies, and enjoy a number of competitive advantages over us, including: •greater name and brand recognition, financial and human resources; •broader product lines; •larger sales forces and more established distributor networks; •substantial intellectual property portfolios; •larger and more established customer bases and relationships; and •better established, larger scale, and lower cost manufacturing capabilities.46We believe that the principal competitive factors in all of our target markets include: •cost of capital equipment; •cost of consumables and supplies; •reputation among customers; •innovation in product offerings; •flexibility and ease-of-use; •accuracy and reproducibility of results; and •compatibility with existing laboratory processes, tools and methods.We believe that additional competitive factors specific to the diagnostics market include: •breadth of clinical decisions that can be influenced by information generated by tests; •volume, quality, and strength of clinical and analytical validation data; •availability of coverage and adequate reimbursement for testing services; and •economic benefit accrued to customers based on testing services enabled by products.Our products may not compete favorably and we may not be successful in the face of increasing competition from new products and technologiesintroduced by our existing competitors or new companies entering our markets. In addition, our competitors may have or may develop products ortechnologies that currently or in the future will enable them to produce competitive products with greater capabilities or at lower costs than ours. Any failureto compete effectively could materially and adversely affect our business, financial condition and operating results.We are dependent on a single third-party supplier to supply a subcomponent of our systems, and the loss of any of these suppliers could harm our business.We currently rely on a single supplier to supply a subcomponent used in our HTG EdgeSeq processors. Our contracts with this supplier do not commitit to carry inventory or make available any particular quantities, and it may give other customers’ needs higher priority than ours and we may not be able toobtain adequate supplies in a timely manner or on commercially reasonable terms. We also rely on third-party suppliers for various components we use tomanufacture our consumable products. We periodically forecast our needs for such components and enter into standard purchase orders with such suppliers. Ifwe were to lose any such suppliers, we may not be able to identify or enter into agreements with alternative suppliers on a timely basis on acceptable terms, orat all. If we should encounter delays or difficulties in securing the quality and quantity of materials we require for our products, our supply chain would beinterrupted which would adversely affect our sales. A loss of any of these suppliers could significantly delay the delivery of our applicable product(s), whichin turn would materially affect our ability to generate revenue. If any of these events occur, our business and operating results could be materially harmed.We may encounter manufacturing difficulties that could impede or delay production of our HTG EdgeSeq systems.We began manufacturing our HTG EdgeSeq system internally in 2016. We have limited experience with manufacturing the system and our internalmanufacturing operations may encounter difficulties involving, among other things, scale-up of manufacturing processes, production efficiency and output,regulatory compliance, quality control and quality assurance, and shortages of qualified personnel. Any failure in our planned internal manufacturingoperations could cause us to be unable to meet demand for these systems, delay the delivery of the system to customers, and harm our business relationshipsand reputation.If we encounter difficulties in our planned internal manufacturing operations, we may need to engage a third-party supplier, provided we cannot besure we will be able to do so in a timely manner, or at all, or on favorable terms.Any of these factors could cause us to delay or suspend production of our HTG EdgeSeq system, entail unplanned additional costs and materiallyharm our business, results of operations and financial condition.47If our Tucson facilities become unavailable or inoperable, the manufacturing of our instrument and consumable products or our ability to process salesorders will be interrupted and our business could be materially harmed.We manufacture our consumable products and our HTG EdgeSeq system in our Tucson, Arizona facilities. In addition, our Tucson facilities are thecenter for order processing, receipt of critical components of our HTG EdgeSeq instrument and shipping products to customers. We do not have redundantfacilities. Damage or the inability to utilize our Tucson facilities and the equipment we use to perform research and development and manufacture ourproducts could be costly, and we would require substantial lead-time to repair or replace this facility and equipment. The Tucson facilities may be harmed orrendered inoperable by natural or man-made disasters, including flooding, wind damage, power spikes and power outages, which may render it difficult orimpossible for us to perform these critical functions for some period of time. The inability to manufacture consumables, process customer samples or shipproducts to customers for even a short period of time may result in the loss of customers or harm our reputation, and we may be unable to regain thosecustomers in the future. Although we possess insurance for damage to our property and the disruption of our business, this insurance may not be sufficient tocover all of our potential losses and may not continue to be available to us on acceptable terms, or at all.We expect to generate a portion of our revenue internationally and are subject to various risks relating to our international activities which couldadversely affect our operating results.During the year ended December 31, 2016, approximately 16% of our revenue was generated from sales to customers located outside of the UnitedStates, compared with 13% for the year ended December 31, 2015. We expect that a percentage of our future revenue will continue to come from internationalsources, and we expect to expand our overseas operations and develop opportunities in additional areas. Engaging in international business involves anumber of difficulties and risks, including: •required compliance with existing and changing foreign regulatory requirements and laws; •required compliance with anti-bribery laws, such as the U.S. Foreign Corrupt Practices Act and U.K. Bribery Act, data privacy requirements,labor laws and anti-competition regulations; •export and import restrictions; •various reimbursement, pricing and insurance regimes; •laws and business practices favoring local companies; •longer payment cycles and difficulties in enforcing agreements and collecting receivables through certain foreign legal systems; •political and economic instability; •potentially adverse tax consequences, tariffs, customs charges, bureaucratic requirements and other trade barriers, including transfer pricing,value added and other tax systems, double taxation and restrictions and/or taxation on repatriation of earnings; •tariffs, customs charges, bureaucratic requirements and other trade barriers; •difficulties and costs of staffing and managing foreign operations, including difficulties and costs associated with foreign employment laws; •increased financial accounting and reporting burdens and complexities; and •difficulties protecting, procuring, or enforcing intellectual property rights, including from reduced or varied protection for intellectual propertyrights in some countries.As we expand internationally our results of operations and cash flows will become increasingly subject to fluctuations due to changes in foreigncurrency exchange rates. Historically, most of our revenue has been denominated in U.S. dollars, although we have sold our products and services in localcurrency outside of the United States, principally the Euro. Our expenses are generally denominated in the currencies in which our operations are located,which is primarily in the United States. As our operations in countries outside of the United States grows, our results of operations and cash flows willincreasingly be subject to fluctuations due to changes in foreign currency exchange rates, which could negatively impact our results of operations in thefuture. For example, if the value of the U.S. dollar increases relative to foreign currencies, in the absence of an offsetting change in local currency prices, ourrevenue could be adversely affected as we convert revenue from local currencies to U.S. dollars.If we dedicate significant resources to our international operations and are unable to manage these risks effectively, our business, operating results andprospects will suffer. Moreover, we cannot be certain that the investment and additional resources required in establishing operations in other countries willproduce desired levels of revenue or profitability.48In addition, any failure to comply with applicable legal and regulatory obligations could negatively impact us in a variety of ways that include, butare not limited to, significant criminal, civil and administrative penalties, including imprisonment of individuals, fines and penalties, denial of exportprivileges, seizure of shipments and restrictions on certain business activities.We rely on distributors for sales of our products in several markets outside of the United States.We have established exclusive and non-exclusive distribution agreements for our HTG EdgeSeq platforms and related profiling panels within parts ofEurope, the Middle East and Asia. We intend to continue to grow our business internationally, and to do so, in addition to expanding our own direct salesand support team, we plan to attract additional distributors and sales partners to maximize the commercial opportunity for our products. We cannot guaranteethat we will be successful in attracting desirable distribution and sales partners or that we will be able to enter into such arrangements on favorable terms.Distributors and sales partners may not commit the necessary resources to market and sell our products to the level of our expectations or may favormarketing the products of our competitors. If current or future distributors or sales partners do not perform adequately, or we are unable to enter into effectivearrangements with distributors or sales partners in particular geographic areas, we may not realize long-term international revenue growth.Limitations in the use of our products could harm our reputation or decrease market acceptance of our products; undetected errors or defects in ourproducts could harm our reputation, decrease market acceptance of our products or expose us to product liability claims.Our products are subject to the limitations set forth in the product labeling, which may not satisfy the needs of all customers. For example, in the pastwe have introduced new panels that initially were intended to be used with specific sample types. Because our customers desire that our panels be broadlyapplicable to many biological sample types, these initial limitations could harm our reputation or decrease market acceptance of our products. If that occurs,we may incur significant costs, the attention of our key personnel could be diverted, or other significant customer relations problems may arise, which couldharm our business and operating results.Similarly, our products may contain undetected errors or defects when first introduced or as new versions are released. Since our current customers useour products for research and, if cleared or approved for diagnostic applications, disruptions or other performance problems with our products may damageour customers’ businesses and could harm our reputation. If that occurs, we may incur significant costs, the attention of our key personnel could be diverted,or other significant customer relations problems may arise. We may also be subject to warranty and liability claims for damages related to errors or defects inour products. A material liability claim or other occurrence that harms our reputation or decreases market acceptance of our products could harm our businessand operating results.The sale and use of products or services based on our technologies, or activities related to our research and clinical studies, could lead to the filing ofproduct liability claims if someone were to allege that one of our products contained a design or manufacturing defect which resulted in the failure toadequately perform the analysis for which it was designed. A product liability claim could result in substantial damages and be costly and time consuming todefend, either of which could materially harm our business or financial condition. We cannot assure investors that our product liability insurance couldadequately protect our assets from the financial impact of defending a product liability claim. Any product liability claim brought against us, with or withoutmerit, could increase our product liability insurance rates or prevent us from securing insurance coverage in the future.The enactment of legislation implementing changes in the U.S. taxation of international business activities or the adoption of other tax reform policiescould materially impact our future financial position and results of operations.Existing U.S. tax laws, including limitations on the ability of taxpayers to claim and utilize foreign tax credits and the deferral of certain taxdeductions until earnings outside of the United States are repatriated to the United States, as well as changes to U.S. tax laws that may be enacted in thefuture, could impact the tax treatment of future foreign earnings. Should the scale of our international business activities expand, any such changes in theU.S. taxation of such activities could increase our worldwide effective tax rate and harm our future financial position and results of operations.Our ability to use net operating losses to offset future taxable income may be subject to certain limitations.As of December 31, 2016, we had federal net operating loss carryforwards, or NOLs, to offset future taxable income of approximately $102.2 million,which will begin to expire in 2021 if not utilized. A lack of future taxable income would adversely affect our ability to utilize these NOLs. In addition, underSection 382 of the Internal Revenue Code of 1986, as amended, or the Code, a corporation that undergoes an “ownership change” (generally defined as agreater than 50% change, by value, in its equity ownership over a three-year period) is subject to limitations on its ability to utilize its NOLs to offset futuretaxable income. We believe we may have already experienced an ownership change and may in the future experience one or more additional ownership49changes, and thus, our ability to use pre-ownership change NOLs and other pre-ownership change tax attributes to offset post-ownership change income maybe limited. Such limitations may cause a portion of our NOL and credit carryforwards to expire. In addition, future changes in our stock ownership, includingas a result of future financings, as well as changes that may be outside of our control, could result in ownership changes under Section 382 of the Code. OurNOLs may also be impaired under similar provisions of state law. We have recorded a full valuation allowance related to our NOLs and other deferred taxassets due to the uncertainty of the ultimate realization of the future benefits of those assets.Acquisitions or joint ventures could disrupt our business, cause dilution to our stockholders and otherwise harm our business.We may acquire other businesses, products or technologies as well as pursue strategic alliances, joint ventures, technology licenses or investments incomplementary businesses. We have limited experience with respect to business, product or technology acquisitions or the formation of collaborations,strategic alliances and joint ventures or investing in complementary businesses. Any of these transactions could be material to our financial condition andoperating results and expose us to many risks, including: •disruption in our relationships with customers, distributors or suppliers as a result of such a transaction; •unanticipated liabilities related to acquired companies; •difficulties integrating acquired personnel, technologies and operations into our existing business; •diversion of management time and focus from operating our business to acquisition integration challenges; •increases in our expenses and reductions in our cash available for operations and other uses; and •possible write-offs or impairment charges relating to acquired businesses.Foreign acquisitions involve unique risks in addition to those mentioned above, including those related to integration of operations across differentcultures and languages, currency risks and the particular economic, political and regulatory risks associated with specific countries. Also, the anticipatedbenefit of any acquisition may not materialize. Future acquisitions or dispositions could result in potentially dilutive issuances of our equity securities, theincurrence of debt, contingent liabilities or amortization expenses or write-offs of goodwill, any of which could harm our financial condition. We cannotpredict the number, timing or size of future joint ventures or acquisitions, or the effect that any such transactions might have on our operating results.If any members of our management team were to leave us or we are unable to recruit, train and retain key personnel, we may not achieve our goals.Our future success depends on our ability to recruit, train, retain and motivate key personnel, including our senior management, research anddevelopment, manufacturing and sales and marketing personnel. If we were to lose one or more of our key employees, we may experience difficulties incompeting effectively, developing our technologies and implementing our business strategies. Competition for qualified personnel is intense, and we maynot be able to attract talent. Our growth depends, in part, on attracting, retaining and motivating highly trained sales personnel with the necessary scientificbackground and ability to understand our systems at a technical level to effectively identify and sell to potential new customers, including newbiopharmaceutical company customers. In particular, the commercialization of our HTG EdgeSeq system and related panels requires us to continue toestablish and maintain a sales and support team to optimize the market for research tools, then to fully optimize a broad array of diagnostic marketopportunities if we receive approval for any future diagnostic products. We do not maintain fixed term employment contracts or, except for our ChiefExecutive Officer, key man life insurance with any of our employees. Because of the complex and technical nature of our products and the dynamic market inwhich we compete, any failure to retain our management team or to attract, train, retain and motivate other qualified personnel could materially harm ouroperating results and growth prospects.Our operating results may be harmed if we are required to collect sales, services or other related taxes for our products and services in jurisdictions wherewe have not historically done so.We do not believe that we are required to collect sales, use, services or other similar taxes from our customers in certain jurisdictions. However, one ormore countries or states may seek to impose sales, use, services, or other tax collection obligations on us, including for past sales. A successful assertion byone or more jurisdictions that we should collect sales or other taxes on the sale of our products and services could result in substantial tax liabilities for pastsales and decrease our ability to compete for future sales. Each country and each state has different rules and regulations governing sales and use taxes andthese rules and regulations are subject to varying interpretations that may change over time. We review these rules and regulations periodically and, when webelieve sales and use taxes apply in a particular jurisdiction, voluntarily engage tax authorities in order to determine how to comply with their rules andregulations. We cannot assure you that we will not be subject to sales and use taxes or related penalties for past sales in jurisdictions where we presentlybelieve sales and use taxes are not due.50Providers of goods or services are typically held responsible by taxing authorities for the collection and payment of any applicable sales and similartaxes. If one or more taxing authorities determines that taxes should have, but have not, been paid with respect to our products and services, we may be liablefor past taxes in addition to being required to collect sales or similar taxes in respect of our products and services going forward. Liability for past taxes mayalso include substantial interest and penalty charges. Our customer contracts provide that our customers must pay all applicable sales and similar taxes.Nevertheless, customers may be reluctant to pay back taxes and may refuse responsibility for interest or penalties associated with those taxes or we maydetermine that it would not be feasible to seek reimbursement. If we are required to collect and pay back taxes and the associated interest and penalties and ifour customers do not reimburse us for all or a portion of these amounts, we will have incurred unplanned expenses that may be substantial. Moreover,imposition of such taxes on our products and services going forward will effectively increase the cost of such products and services to our customers.Many states are also pursuing legislative expansion of the scope of goods and services that are subject to sales and similar taxes as well as thecircumstances in which a vendor of goods and services must collect such taxes. Furthermore, legislative proposals have been introduced in Congress thatwould provide states with additional authority to impose such taxes. Accordingly, it is possible that either federal or state legislative changes may require usto collect additional sales and similar taxes from our customers in the future.Our insurance policies are expensive and protect us only from some business risks, which will leave us exposed to significant uninsured liabilities.We do not carry insurance for all categories of risk that our business may encounter. Some of the policies we currently maintain include generalliability, foreign liability, employee benefits liability, property, automobile, umbrella, workers’ compensation, crime (including cybercrime), fiduciary,products liability, pollution, errors and omissions and directors’ and officers’ insurance. We do not know, however, if we will be able to maintain existinginsurance with adequate levels of coverage. Any significant uninsured liability may require us to pay substantial amounts, which would adversely affect ourcash position and results of operations.Performance issues, service interruptions or price increases by our shipping carriers could adversely affect our business and harm our reputation andability to provide our services on a timely basis.Expedited, reliable shipping is essential to our operations. We rely heavily on providers of transport services for reliable and secure point-to-pointtransport of our HTG Edge and HTG EdgeSeq systems and consumables to our customers and, as applicable, customers’ samples to our laboratory, and forenhanced tracking of these shipments. Should a carrier encounter delivery performance issues such as loss, damage or destruction of any instrumentation,consumables or samples, it would be costly to replace such instrumentation or consumables in a timely manner and may be difficult to replace customers’samples lost or damaged in shipping, and such occurrences may damage our reputation and lead to decreased demand for our products and increased cost andexpense to our business. In addition, any significant increase in shipping rates could adversely affect our operating margins and results of operations.Similarly, strikes, severe weather, natural disasters or other service interruptions affecting delivery services we use would adversely affect our ability toprocess orders for our products or receive recipient samples on a timely basis.We face risks related to handling of hazardous materials and other regulations governing environmental safety.Our operations are subject to complex and stringent environmental, health, safety and other governmental laws and regulations that both publicofficials and private individuals may seek to enforce. Our activities that are subject to these regulations include, among other things, our use of hazardousmaterials and the generation, transportation and storage of waste. We could discover that we or an acquired business is not in material compliance with theseregulations. Existing laws and regulations may also be revised or reinterpreted, or new laws and regulations may become applicable to us, whetherretroactively or prospectively, that may have a negative effect on our business and results of operations. It is also impossible to eliminate completely the riskof accidental environmental contamination or injury to individuals. In such an event, we could be liable for any damages that result, and any liability couldexceed our resources or any applicable insurance coverage we may have, which events could adversely affect our business.Cyber security risks and the failure to maintain the confidentiality, integrity, and availability of our computer hardware, software, and internetapplications and related tools and functions could result in damage to our reputation and/or subject us to costs, fines or lawsuits.Our business requires manipulating, analyzing and storing large amounts of data. In addition, we rely on an enterprise software system to operate andmanage our business. We also maintain personally identifiable information about our employees. Our business therefore depends on the continuous,effective, reliable and secure operation of our computer hardware, software, networks, Internet servers and related infrastructure. To the extent that ourhardware and software malfunction or access to our data by internal personnel is interrupted, our business could suffer. The integrity and protection of ouremployee and company data is critical to our business and employees have a high expectation that we will adequately protect their personal information. Theregulatory environment governing51information, security and privacy laws is increasingly demanding and continues to evolve. Maintaining compliance with applicable security and privacyregulations may increase our operating costs. Although our computer and communications software is protected through physical and software safeguards, itis still vulnerable to natural or man-made hazards, such as fire, storm, flood, power loss, wind damage, telecommunications failures, physical or softwarebreak-ins, software viruses and similar events. These events could lead to the unauthorized access, disclosure and use of non-public information. Thetechniques used by criminal elements to attack computer systems are sophisticated, change frequently and may originate from less regulated and remote areasof the world. As a result, we may not be able to address these techniques proactively or implement adequate preventative measures. If our computer systemsare compromised, we could be subject to fines, damages, litigation and enforcement actions, and we could lose trade secrets, the occurrence of which couldharm our business. In addition, any sustained disruption in internet access provided by other companies could harm our business.Risks Related to Government Regulation and Diagnostic Product ReimbursementOur “research-use-only” products for the life sciences market could become subject to regulation as medical devices by the FDA or other regulatoryagencies in the future which could increase our costs and delay our commercialization efforts, thereby materially and adversely affecting our life sciencesbusiness and results of operations.In the United States, our products are currently labeled and sold for research use only, and not for the diagnosis or treatment of disease, and are sold toa variety of parties, including biopharmaceutical companies, academic institutions and molecular labs. Because such products are not intended for use inclinical practice in diagnostics, and the products cannot include clinical or diagnostic claims, they are exempt from many regulatory requirements otherwiseapplicable to medical devices. In particular, while the FDA regulations require that RUO products be labeled, “For Research Use Only. Not for use indiagnostic procedures,” the regulations do not otherwise subject such products to the FDA’s pre- and post-market controls for medical devices.A significant change in the laws governing RUO products or how they are enforced may require us to change our business model in order to maintaincompliance. For instance, in November 2013 the FDA issued a guidance document entitled “Distribution of In Vitro Diagnostic Products Labeled forResearch Use Only or Investigational Use Only”, or the RUO Guidance, which highlights the FDA’s interpretation that distribution of RUO products with anylabeling, advertising or promotion that suggests that clinical laboratories can validate the test through their own procedures and subsequently offer it forclinical diagnostic use as a laboratory developed test is in conflict with RUO status. The RUO Guidance further articulates the FDA’s position that anyassistance offered in performing clinical validation or verification, or similar specialized technical support, to clinical laboratories, conflicts with RUO status.If we engage in any activities that the FDA deems to be in conflict with the RUO status held by the products that we sell, we may be subject to immediate,severe and broad FDA enforcement action that would adversely affect our ability to continue operations. Accordingly, if the FDA finds that we aredistributing our RUO products in a manner that is inconsistent with its regulations or guidance, we may be forced to stop distribution of our RUO tests untilwe are in compliance, which would reduce our revenues, increase our costs and adversely affect our business, prospects, results of operations and financialcondition. In addition, the FDA’s proposed implementation for a new framework for the regulation of Laboratory Developed Tests, or LDTs, may negativelyimpact the LDT market and thereby reduce demand for RUO products.If the FDA requires marketing authorization of our RUO products in the future, there can be no assurance that the FDA will ultimately grant anyclearance or approval requested by us in a timely manner, or at all.Approval and/or clearance by the FDA and foreign regulatory authorities for any diagnostic tests will take significant time and require significantresearch, development and clinical study expenditures and ultimately may not succeed.Before we begin to label and market our products for use as clinical diagnostics in the United States, including as companion diagnostics, unless anexemption applies, we will be required to obtain either 510(k) clearance or PMA from the FDA. In addition, we may be required to seek FDA clearance for anychanges or modifications to our products that could significantly affect their safety or effectiveness, or would constitute a change in intended use. The 510(k)clearance processes can be expensive, time-consuming and uncertain. In addition to the time required to conduct clinical studies, if necessary, it generallytakes from four to twelve months from submission of an application to obtain 510(k) clearance; however, it may take longer and 510(k) clearance may neverbe obtained. Even if the FDA accepts a 510(k) submission for filing, the FDA may request additional information or clinical studies during its review. Ourability to obtain additional regulatory clearances for new products and indications may be significantly delayed or may never be obtained. In addition, wemay be required to obtain PMAs for new products or product modifications. The requirements of the more rigorous PMA process could delay productintroductions and increase the costs associated with FDA compliance. As with all IVD products, the FDA reserves the right to redefine the regulatory path atthe time of submission or during the review process, and could require a more burdensome approach. Even if we were to obtain regulatory approval orclearance, it may not be for the uses we believe are important or commercially attractive, in which case we would not be permitted to market our product forthose uses.52A 510(k) clearance or PMA submission for any future medical device product would likely place substantial restrictions on how the device ismarketed or sold, and we will be required to continue to comply with extensive regulatory requirements, including, but not limited to QSRs, registeringmanufacturing facilities, listing the products with the FDA, and complying with labeling, marketing, complaint handling, adverse event and medical devicereporting requirements and corrections and removals. We cannot assure you that we will successfully maintain the clearances or approvals we may receive inthe future. In addition, any clearances or approvals we obtain may be revoked if any issues arise that bring into question our products’ safety or effectiveness.Any failure to maintain compliance with FDA regulatory requirements could harm our business, financial condition and results of operations.Sales of our diagnostic products outside the United States will be subject to foreign regulatory requirements governing clinical studies, vigilancereporting, marketing approval, manufacturing, product licensing, pricing and reimbursement. These regulatory requirements vary greatly from country tocountry. As a result, the time required to obtain approvals outside the United States may differ from that required to obtain FDA approval and we may not beable to obtain foreign regulatory approvals on a timely basis or at all. Approval by the FDA does not ensure approval by regulatory authorities in othercountries, and approval by one foreign regulatory authority does not ensure approval by regulatory authorities in other countries or by the FDA and foreignregulatory authorities could require additional testing. In addition, the FDA regulates exports of medical devices. Failure to comply with these regulatoryrequirements or obtain required approvals could impair our ability to commercialize our diagnostic products outside of the United States.We expect to rely on third parties to conduct any future studies of our diagnostic products that may be required by the FDA or other regulatory authorities,and those third parties may not perform satisfactorily.We do not have the ability to independently conduct the clinical studies or other studies that may be required to obtain FDA and other regulatoryclearance or approval for our diagnostic products, including the HTG Edge system, the HTG EdgeSeq system and related proprietary panels. Accordingly, weexpect to rely on third parties, such as medical institutions and clinical investigators, and providers of NGS instrumentation, to conduct such studies and/orto provide information necessary for our submissions to regulatory authorities. Our reliance on these third parties for clinical development activities orinformation will reduce our control over these activities. These third-parties may not complete activities on schedule or conduct studies in accordance withregulatory requirements or our study design. Similarly, providers of NGS instrumentation may not place the same importance on our regulatory submissionsas we do. Our reliance on third parties that we do not control will not relieve us of any applicable requirement to prepare, and ensure compliance with, thevarious procedures requires under good clinical practices, or the submission of all information required in connection with requested regulatory approvals. Ifthese third parties do not successfully carry out their contractual duties or regulatory obligations or meet expected deadlines if the third parties need to bereplaced or if the quality or accuracy of the data they obtain is compromised due to their failure to adhere to our clinical protocols or regulatory requirementsor for other reasons, our studies may be extended, delayed, suspended or terminated, and we may not be able to obtain regulatory approval for our diagnosticproducts.Even if we are able to obtain regulatory approval or clearance for our diagnostic products, we will continue to be subject to ongoing and extensiveregulatory requirements, and our failure to comply with these requirements could substantially harm our business.If we receive regulatory approval or clearance for our diagnostic products, we will be subject to ongoing FDA obligations and continued regulatoryoversight and review, such as compliance with QSRs, inspections by the FDA, continued adverse event and malfunction reporting, corrections and removalsreporting, registration and listing, and promotional restrictions, and we may also be subject to additional FDA post-marketing obligations. If we are not ableto maintain regulatory compliance, we may not be permitted to market our diagnostic products and/or may be subject to fines, injunctions, and civilpenalties; recall or seizure of products; operating restrictions; and criminal prosecution. In addition, we may be subject to similar regulatory complianceactions of foreign jurisdictions.If Medicare and other third-party payors in the United States and foreign countries do not approve coverage and adequate reimbursement for our futureclinical diagnostic tests enabled by our technology, the commercial success of our diagnostic products would be compromised.We plan to develop, obtain regulatory approval for and sell clinical diagnostics products for a number of different indications. Successfulcommercialization of our clinical diagnostic products depends, in large part, on the availability of coverage and adequate reimbursement for testing servicesusing our diagnostic products from third-party payors, including government insurance plans, managed care organizations and private insurance plans. Thereis significant uncertainty surrounding third-party coverage and reimbursement for the use of tests that incorporate new technology, such as the HTG EdgeSeqsystem and related applications and assays. Reimbursement rates have the potential to fluctuate depending on the region in which the testing is provided, thetype of facility or treatment center at which the testing is done, and the third-party payor responsible for payment. If our customers are unable to obtainpositive coverage decisions from third-party payors approving reimbursement for our tests at adequate levels, the53commercial success of our products would be compromised and our revenue would be significantly limited. Even if we do obtain favorable reimbursement forour tests, third-party payors may withdraw their coverage policies, review and adjust the rate of reimbursement, require co-payments from patients or stoppaying for our tests, which would reduce revenue for testing services based on our technology and demand for our diagnostic products.The American Medical Association Current Procedural Terminology, or CPT, Editorial Panel created new CPT codes that could be used by ourcustomers to report testing for certain large-scale multianalyte GSPs, including our diagnostic products, if approved. Effective January 1, 2015, these codesallow for uniform reporting of broad genomic testing panels using technology similar to ours. While these codes standardize reporting for these tests,coverage and payment rates for GSPs remain uncertain and we cannot guarantee that coverage and/or reimbursement for these tests will be provided in theamounts we expect, or at all. Initially, industry associations recommended that payment rates for GSPs be cross-walked to existing codes on the clinicallaboratory fee schedule. On October 27, 2014, CMS issued preliminary determinations for 29 new molecular pathology codes, including the GSPs, of gapfillrather than crosswalking as recommended by the Association for Molecular Pathology. This means that local private MACs, such as Palmetto, Novidian,Novitas and Cahaba, were instructed to determine the appropriate fee schedule amounts in the first year, and CMS calculated a national payment rate basedon the median of those local fee schedule amounts in the second year. This process may make it more difficult for our customers to obtain coverage andadequate reimbursement for testing services using our diagnostic products. We cannot assure that CMS and other third-party payors will establishreimbursement rates sufficient to cover the costs incurred by our customers in using our clinical diagnostic products, if approved. On September 25, 2015,CMS released final 2015 pricing for 10 of these codes, and did not issue any pricing on the remaining 19. CPTs 81445 and 81450 for the assessment of 5-50genes in solid and liquid tumors, respectively, and final gapfill pricing of $597 and $648, respectively, was set for 2015 and is the pricing for 2016. CPT81455 for the assessment of 51 or more genes in solid and liquid tumors has not yet been priced.Even if we are able to establish coverage and reimbursement codes for our clinical diagnostic products in development, we will continue to be subjectto significant pricing pressure, which could harm our business, results of operations, financial condition and prospects.Third-party payors, including managed care organizations as well as government payors such as Medicare and Medicaid, have increased their effortsto control the cost, utilization and delivery of healthcare services, which may include decreased coverage or reduced reimbursement. From time to time,Congress has considered and implemented changes to the Medicare fee schedules in conjunction with budgetary legislation, and pricing and payment terms,including the possible requirement of a patient co-payment for Medicare beneficiaries for laboratory tests covered by Medicare, and are subject to change atany time. Reductions in the reimbursement rate of third-party payors have occurred and may occur in the future. Reductions in the prices at which testingservices based on our technology are reimbursed in the future could result in pricing pressures and have a negative impact on our revenue. In many countriesoutside of the United States, various coverage, pricing and reimbursement approvals are required. We expect that it will take several years to establish broadcoverage and reimbursement for testing services based on our products with payors in countries outside of the United States, and our efforts may not besuccessful.We may be subject, directly or indirectly, to federal and state healthcare fraud and abuse laws and other federal and state healthcare laws applicable toour business and marketing practices. If we are unable to comply, or have not complied, with such laws, we could face substantial penalties.Our operations may be, and may continue to be, directly, or indirectly through our customers, subject to various federal and state fraud and abuse laws,including, without limitation, the federal and state anti-kickback statutes, false claims statutes, civil monetary penalties laws, patient data privacy andsecurity laws, physician transparency laws and marketing compliance laws. These laws may impact, among other things, our proposed sales and marketingand education programs.54The laws that may affect our ability to operate include, but are not limited to: •the Federal Anti-kickback Statute, which prohibits, among other things, knowingly and willfully soliciting, receiving, offering or paying anyremuneration (including any kickback, bribe, or rebate), directly or indirectly, overtly or covertly, in cash or in kind, to induce, or in return for,either the referral of an individual, or the purchase, lease, order or recommendation of any good, facility, item or service for which payment maybe made, in whole or in part, under a federal healthcare program, such as the Medicare and Medicaid programs; a person or entity does not needto have actual knowledge of the statute or specific intent to violate it to have committed a violation, rather, if one purpose of the remunerationis to induce referrals, the Federal Anti-Kickback Statute is violated; •the federal physician self-referral prohibition, commonly known as the Stark Law, which prohibits, among other things, physicians who have afinancial relationship, including an investment, ownership or compensation relationship with an entity, from referring Medicare and Medicaidpatients to that entity for designated health services, which include clinical laboratory services, unless an exception applies. Similarly, entitiesmay not bill Medicare, Medicaid or any other party for services furnished pursuant to a prohibited referral. Unlike the Federal Anti-KickbackStatute, the Stark Law is a strict liability statute, meaning that all of the requirements of a Stark Law exception must be met in order to becompliant with the law; •federal civil and criminal false claims laws, including the False Claims Act, and civil monetary penalties laws, which prohibit, among otherthings, individuals or entities from knowingly presenting, or causing to be presented, claims for payment or approval from Medicare, Medicaidor other governmental third-party payors that are false or fraudulent, knowingly making a false statement material to an obligation to pay ortransmit money to the Federal Government or knowingly concealing or knowingly and improperly avoiding or decreasing an obligation to paymoney to the Federal Government, which may apply to entities that provide coding and billing advice to customers; the Federal Governmentmay assert that a claim including items or services resulting from a violation of the Federal Anti-Kickback Statute constitutes a false orfraudulent claim for purposes of the False Claims Act; •HIPAA, which created additional federal criminal statutes that prohibit knowingly and willfully executing, or attempting to execute, a schemeto defraud any healthcare benefit program or obtain, by means of false or fraudulent pretenses, representations, or promises, any of the money orproperty owned by, or under the custody or control of, any healthcare benefit program, regardless of the payor (e.g., public or private) andknowingly and willfully falsifying, concealing, or covering up by any trick or device a material fact or making any materially false statementsin connection with the delivery of, or payment for, healthcare benefits, items or services relating to healthcare matters; similar to the FederalAnti-Kickback Statute, a person or entity does not need to have actual knowledge of the healthcare fraud statute or specific intent to violate itto have committed a violation; •HIPAA, as amended by HITECH, and their respective implementing regulations, which impose requirements on certain covered healthcareproviders, health plans, and healthcare clearinghouses as well as their respective business associates that perform services for them that involvethe use, maintenance, or disclosure of individually identifiable health information, relating to the privacy, security and transmission ofindividually identifiable health information; •the Federal Physician Payments Sunshine Act, which require certain manufacturers of drugs, devices, biologicals and medical supplies forwhich payment is available under Medicare, Medicaid or the Children’s Health Insurance Program (with certain exceptions) to report annuallyto CMS information related to payments or other transfers of value made to physicians and teaching hospitals, as well as applicablemanufacturers and group purchasing organizations to report annually to CMS certain ownership and investment interests held by physiciansand their immediate family members; and •state law equivalents of each of the above federal laws, such as anti-kickback, self-referral, and false claims laws which may apply to ourbusiness practices, including but not limited to, research, distribution, sales and marketing arrangements as well as submitting claims involvinghealthcare items or services reimbursed by any third-party payor, including commercial insurers; state laws that require device companies tocomply with the industry’s voluntary compliance guidelines and the applicable compliance guidance promulgated by the Federal Governmentthat otherwise restricts payments that may be made to healthcare providers; state laws that require device manufacturers to file reports withstates regarding marketing information, such as the tracking and reporting of gifts, compensations and other remuneration and items of valueprovided to healthcare professionals and entities (compliance with such requirements may require investment in infrastructure to ensure thattracking is performed properly, and some of these laws result in the public disclosure of various types of payments and relationships, whichcould potentially have a negative effect on our business and/or increase enforcement scrutiny of our activities); and state laws governing theprivacy and security of health information in certain circumstances, many of which differ from each other in significant ways, with differingeffects.55Promotional activities for FDA-regulated products have been the subject of significant enforcement actions brought under healthcare reimbursementlaws, fraud and abuse laws, and consumer protection statutes, among other theories. Advertising and promotion of medical devices are also regulated by theFederal Trade Commission and by state regulatory and enforcement authorities. In addition, under the Federal Lanham Act and similar state laws, competitorsand others can initiate litigation relating to advertising claims.In addition, the approval and commercialization of any of our product candidates outside the United States will also likely subject us to foreignequivalents of the healthcare laws mentioned above, among other foreign laws.Because of the breadth of these laws and the narrowness of the statutory exceptions and safe harbors available under such laws, it is possible that someof our business activities, including our relationships with physicians and other health care providers, and our evaluation, reagent rental and collaborationarrangements with customers, and sales and marketing efforts could be subject to challenge under one or more of such laws.If our operations are found to be in violation of any of the laws described above or any other governmental regulations that apply to us, we may besubject to penalties, including administrative, civil and criminal penalties, damages, fines, individual imprisonment, disgorgement, exclusion fromparticipation in federal healthcare programs, such as Medicare and Medicaid, contractual damages, reputational harm, additional reporting requirementsand/or oversight if we become subject to a corporate integrity agreement or similar agreement to resolve allegations of non-compliance with these laws, andthe curtailment or restructuring of our operations, any of which could adversely affect our ability to operate our business and our results of operations.Our employees, independent contractors, principal investigators, consultants, commercial partners and vendors may engage in misconduct or otherimproper activities, including non-compliance with regulatory standards and requirements.We are exposed to the risk of fraud or other misconduct by our employees, independent contractors, principal investigators, consultants, commercialpartners and vendors. Misconduct by these parties could include intentional, reckless or negligent failures to, among other things: (i) comply with theregulations of the FDA, CMS, the Department of Health and Human Services Office of Inspector General, or OIG, and other similar foreign regulatory bodies;(ii) provide true, complete and accurate information to the FDA and other similar regulatory bodies; (iii) comply with manufacturing standards we haveestablished; (iv) comply with healthcare fraud and abuse laws and regulations in the United States and similar foreign fraudulent misconduct laws; or (v)report financial information or data accurately, or disclose unauthorized activities to us. These laws may impact, among other things, our activities withcollaborators and key opinion leaders, as well as our sales, marketing and education programs. In particular, the promotion, sales, marketing and businessarrangements in the healthcare industry are subject to extensive laws and regulations intended to prevent fraud, misconduct, kickbacks, self-dealing andother abusive practices. These laws may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission, customerincentive programs and other business arrangements. Such misconduct could also involve the improper use of information obtained in the course of clinicalstudies, which could result in regulatory sanctions and cause serious harm to our reputation. We currently have a code of conduct applicable to all of ouremployees, but it is not always possible to identify and deter employee misconduct, and our code of conduct and the other precautions we take to detect andprevent this activity may not be effective in controlling unknown or unmanaged risks or losses, or in protecting us from governmental investigations or otheractions or lawsuits stemming from a failure to comply with these laws or regulations. If any such actions are instituted against us, and we are not successful indefending ourselves or asserting our rights, those actions could have a significant impact on our business, including the imposition of civil, criminal andadministrative penalties, damages, monetary fines, disgorgement, individual imprisonment, possible exclusion from participation in Medicare, Medicaid andother federal healthcare programs, contractual damages, reputational harm, diminished profits and future earnings, additional reporting requirements and/oroversight if we become subject to a corporate integrity agreement or similar agreement to resolve allegations of non-compliance with these laws, andcurtailment of our operations. Any of these actions or investigations could result in substantial costs to us, including legal fees, and divert the attention ofmanagement from operating our business.Healthcare policy changes, including recently enacted legislation reforming the United States healthcare system, may have a material adverse effect onour financial condition and results of operations.On April 1, 2014, the Protecting Access to Medicare Act of 2014, or PAMA, was signed into law, which, among other things, significantly alters thecurrent payment methodology under the Medicare Clinical Laboratory Fee Schedule, or CLFS. Under the new law, starting January 1, 2016 and every threeyears thereafter (or annually in the case of advanced diagnostic lab tests), clinical laboratories must report laboratory test payment data for each Medicare-covered clinical diagnostic lab test that it furnishes during a period to be defined by future regulations. The reported data must include the payment rate(reflecting all discounts, rebates, coupons and other price concessions) and the volume of each test that was paid by each private payor (including healthinsurance issuers, group health plans, Medicare Advantage plans and Medicaid managed care organizations). Beginning in 2017, the Medicare payment ratefor each clinical diagnostic lab test will be equal to the weighted median amount for the test from the most recent data collection period. The payment rate56will apply to laboratory tests furnished by a hospital laboratory if the test is separately paid under the hospital outpatient prospective payment system. It istoo early to predict the impact on reimbursement for our products in development.Also under PAMA, CMS is required to adopt temporary billing codes to identify new tests and new advanced diagnostic laboratory tests that havebeen cleared or approved by the FDA. For an existing test that is cleared or approved by the FDA and for which Medicare payment is made as of April 1,2014, CMS is required to assign a unique billing code if one has not already been assigned by the agency. In addition to assigning the code, CMS wasrequired to publicly report payment for the tests no later than January 1, 2016. We cannot determine at this time the full impact of the new law on ourbusiness, financial condition and results of operations.The Affordable Care Act makes changes that could significantly impact the biopharmaceutical and medical device industries and clinical laboratories.For example, the ACA imposes a multifactor productivity adjustment to the reimbursement rate paid under Medicare for certain clinical diagnostic laboratorytests, which may reduce payment rates. These or any future proposed or mandated reductions in payments may apply to some or all of the clinical laboratorytests that our diagnostics customers use our technology to deliver to Medicare beneficiaries, and may reduce demand for our diagnostic products.Other significant measures contained in the ACA include, for example, coordination and promotion of research on comparative clinical effectivenessof different technologies and procedures, initiatives to revise Medicare payment methodologies, such as bundling of payments across the continuum of careby providers and physicians, and initiatives to promote quality indicators in payment methodologies. Further, the ACA includes a deductible 2.3% excise taxon any entity that manufactures or imports medical devices offered for sale in the United States, with limited exceptions, which became effective January 1,2013. However, the Consolidated Appropriations Act of 2016, signed into law in December 2015, includes a two-year moratorium on the medical deviceexcise tax that applies between January 1, 2016 and December 31, 2017. Absent further legislative action, the tax will be automatically reinstated for medicaldevice sales beginning January 1, 2018. The ACA also includes significant new fraud and abuse measures, including required disclosures of financialarrangements with physician customers, lower thresholds for violations and increasing potential penalties for such violations. However, the future of the ACAis uncertain. There have been judicial and Congressional challenges to certain aspects of the ACA. As a result, there have been delays in the implementationof, and action taken to repeal or replace, certain aspects of the ACA. In January 2017, President Trump signed an Executive Order directing federal agencieswith authorities and responsibilities under the ACA to waive, defer, grant exemptions from, or delay the implementation of any provision of the ACA thatwould impose a fiscal or regulatory burden on states, individuals, healthcare providers, health insurers, or manufacturers of pharmaceuticals or medicaldevices. Further, in January 2017, Congress adopted a budget resolution for fiscal year 2017, or the Budget Resolution, that authorizes the implementation oflegislation that would repeal portions of the ACA. Following the passage of the Budget Resolution, in March 2017, the U.S. House of Representativesintroduced legislation known as the American Health Care Act, which, if enacted, would amend or repeal significant portions of the ACA. Among otherchanges, the American Health Care Act would repeal the annual fee on certain brand prescription drugs and biologics imposed on manufacturers andimporters, eliminate the 2.3% excise tax on medical devices, eliminate penalties on individuals and employers that fail to maintain or provide minimumessential coverage, and create refundable tax credits to assist individuals in buying health insurance. The American Health Care Act would also makesignificant changes to Medicaid by, among other things, making Medicaid expansion optional for states, repealing the requirement that state Medicaid plansprovide the same essential health benefits that are required by plans available on the exchanges, modifying federal funding, including implementing a percapita cap on federal payments to states, and changing certain eligibility requirements. While it is uncertain when or if the provisions in the American HealthCare Act will become law, or the extent to which any changes may impact our business, it is clear that concrete steps are being taken to repeal and replacecertain aspects of the ACA.In addition, other legislative changes have been proposed and adopted since the ACA was enacted. On August 2, 2011, President Obama signed intolaw the Budget Control Act of 2011, which, among other things, created the Joint Select Committee on Deficit Reduction to recommend to Congressproposals in spending reductions. The Joint Select Committee did not achieve a targeted deficit reduction of at least $1.2 trillion for the years 2013 through2021, triggering the legislation’s automatic reduction to several government programs. This includes reductions to Medicare payments to providers of2% per fiscal year, which went into effect on April 1, 2013, and, following passage of the Bipartisan Budget Act of 2015, will stay in effect through 2025unless Congressional action is taken. On January 2, 2013, President Obama signed into law the American Taxpayer Relief Act of 2012, which, among otherthings, further reduced Medicare payments to several providers, including hospitals, imaging centers and cancer treatment centers and increased the statute oflimitations period for the government to recover overpayments to providers from three to five years.57Various healthcare reform proposals have also emerged from federal and state governments. Changes in healthcare law or policy, such as the creationof broad test utilization limits for diagnostic products in general or requirements that Medicare patients pay for portions of clinical laboratory tests or servicesreceived, could substantially impact the sales of our tests, increase costs and divert management’s attention from our business. Such co-payments byMedicare beneficiaries for laboratory services were discussed as possible cost savings for the Medicare program as part of the debt ceiling budget discussionsin mid-2011 and may be enacted in the future. In addition, sales of our tests outside of the United States will subject us to foreign regulatory requirements,which may also change over time.We cannot predict whether future healthcare initiatives will be implemented at the federal or state level or in countries outside of the United States inwhich we may do business, or the effect any future legislation or regulation will have on us. The taxes imposed by the new federal legislation and theexpansion in government’s effect on the United States healthcare industry may result in decreased profits to us, lower reimbursements by payors for ourproducts or reduced medical procedure volumes, all of which may adversely affect our business, financial condition and results of operations. The full impactof the ACA, as well as other laws and reform measures that may be proposed and adopted in the future, remains uncertain, but may continue the downwardpressure on medical device pricing, especially under the Medicare program, and may also increase our regulatory burdens and operating costs, which couldhave a material adverse effect on our business operations. There have been judicial and congressional challenges to certain aspects of the ACA, and weexpect additional challenges and amendments in the future. Risks Related to Intellectual PropertyIf we are unable to protect our intellectual property effectively, our business would be harmed.We rely on patent protection as well as trademark, copyright, trade secret and other intellectual property rights protection and contractual restrictionsto protect our proprietary technologies, all of which provide limited protection and may not adequately protect our rights or permit us to gain or keep anycompetitive advantage. Our U.S. and foreign patent and patent application portfolio relates to our nuclease-protection-based technologies as well as to lungcancer and melanoma and DLBCL biomarker panels discovered using our nuclease-protection-based technology. We have exclusive or non-exclusivelicenses to multiple U.S. and foreign patents and patent applications covering technologies that we may elect to utilize in developing diagnostic tests for useon our HTG Edge and HTG EdgeSeq systems. Those licensed patents and patent applications cover technologies related to the diagnosis of breast cancer andmelanoma.If we fail to protect our intellectual property, third parties may be able to compete more effectively against us and we may incur substantial litigationcosts in our attempts to recover or restrict use of our intellectual property.We cannot assure investors that any of our currently pending or future patent applications will result in issued patents, and we cannot predict howlong it will take for such patents to be issued. Further, we cannot assure investors that other parties will not challenge any patents issued to us or that courts orregulatory agencies will hold our patents to be valid or enforceable. We cannot guarantee investors that we will be successful in defending challenges madeagainst our patents. Any successful third-party challenge to our patents could result in the unenforceability or invalidity of such patents.The patent positions of life sciences companies can be highly uncertain and involve complex legal and factual questions for which important legalprinciples remain unresolved. No consistent policy regarding the breadth of claims allowed in such companies’ patents has emerged to date in the UnitedStates. Furthermore, in the biotechnology field, courts frequently render opinions that may adversely affect the patentability of certain inventions ordiscoveries, including opinions that may adversely affect the patentability of methods for analyzing or comparing nucleic acids molecules, such as RNA orDNA.The patent positions of companies engaged in development and commercialization of molecular diagnostic tests are particularly uncertain. Variouscourts, including the U.S. Supreme Court, have recently rendered decisions that impact the scope of patentability of certain inventions or discoveries relatingto molecular diagnostics. Specifically, these decisions stand for the proposition that patent claims that recite laws of nature (for example, the relationshipsbetween gene expression levels and the likelihood of risk of recurrence of cancer) are not themselves patentable unless those patent claims have sufficientadditional features that provide practical assurance that the processes are genuine inventive applications of those laws rather than patent drafting effortsdesigned to monopolize the law of nature itself. What constitutes a “sufficient” additional feature is uncertain. Accordingly, this evolving case law in theUnited States may adversely impact our ability to obtain new patents and may facilitate third-party challenges to our existing owned and licensed patents.58The laws of some non-U.S. countries do not protect intellectual property rights to the same extent as the laws of the United States, and manycompanies have encountered significant problems in protecting and defending such rights in foreign jurisdictions. The legal systems of certain countries,particularly certain developing countries, do not favor the enforcement of patents and other intellectual property protection, particularly those relating tobiotechnology, which could make it difficult for us to stop the infringement of our patents. Proceedings to enforce our patent rights in foreign jurisdictionscould result in substantial cost and divert our efforts and attention from other aspects of our business.Changes in either the patent laws or in interpretations of patent laws in the United States or other countries may diminish the value of our intellectualproperty. We cannot predict the breadth of claims that may be allowed or enforced in our patents or in third-party patents. For example: •We might not have been the first to make the inventions covered by each of our patents and pending patent applications. •We might not have been the first to file patent applications for these inventions. •Others may independently develop similar or alternative products and technologies or duplicate any of our products and technologies. •It is possible that none of our pending patent applications will result in issued patents, and even if they issue as patents, they may not provide abasis for commercially viable products, may not provide us with any competitive advantages, or may be challenged and invalidated by thirdparties. •We may not develop additional proprietary products and technologies that are patentable. •The patents of others may have an adverse effect on our business. •We apply for patents covering our products and technologies and uses thereof, as we deem appropriate. However, we may fail to apply forpatents on important products and technologies in a timely fashion or at all.In addition to pursuing patents on our technology, we take steps to protect our intellectual property and proprietary technology by entering intoconfidentiality agreements and intellectual property assignment agreements with our employees, consultants, corporate partners and, when needed, ouradvisors. Such agreements may not be enforceable or may not provide meaningful protection for our trade secrets or other proprietary information in theevent of unauthorized use or disclosure or other breaches of the agreements, and we may not be able to prevent such unauthorized disclosure. Monitoringunauthorized disclosure is difficult, and we do not know whether the steps we have taken to prevent such disclosure are, or will be, adequate. If we were toenforce a claim that a third party had illegally obtained and was using our trade secrets, it would be expensive and time consuming, and the outcome wouldbe unpredictable. In addition, courts outside the United States may be less willing to protect trade secrets.In addition, competitors could purchase our products and attempt to replicate some or all of the competitive advantages we derive from ourdevelopment efforts, willfully infringe our intellectual property rights, design around our protected technology or develop their own competitivetechnologies that fall outside of our intellectual property rights. If our intellectual property is not adequately protected so as to protect our market againstcompetitors’ products and methods, our competitive position could be adversely affected, as could our business.We have not yet registered certain of our trademarks, including “HTG Edge,” “HTG EdgeSeq,” “VERI/O,” and “qNPA” in all of our potential markets.If we apply to register these trademarks, our applications may not be allowed for registration, and our registered trademarks may not be maintained orenforced. In addition, opposition or cancellation proceedings may be filed against our trademark applications and registrations, and our trademarks may notsurvive such proceedings. If we do not secure registrations for our trademarks, we may encounter more difficulty in enforcing them against third parties thanwe otherwise would.To the extent our intellectual property, including licensed intellectual property, offers inadequate protection, or is found to be invalid orunenforceable, we would be exposed to a greater risk of direct competition. If our intellectual property does not provide adequate protection against ourcompetitors’ products, our competitive position could be adversely affected, as could our business. Both the patent application process and the process ofmanaging patent disputes can be time consuming and expensive.59We may need to depend on certain technologies that are licensed to us. We would not control these technologies and any loss of our rights to them couldprevent us from selling some of our products.We have entered into several license agreements with third parties for certain licensed technologies that are, or may become relevant to the productswe market, or plan to market. In addition, we may in the future elect to license third party intellectual property to further our business objectives and/or asneeded for freedom to operate for our products. We do not and will not own the patents, patent applications or other intellectual property rights that are asubject of these licenses. Our rights to use these technologies and employ the inventions claimed in the licensed patents, patent applications and otherintellectual property rights are or will be subject to the continuation of and compliance with the terms of those licenses.We might not be able to obtain licenses to technology or other intellectual property rights that we require. Even if such licenses are obtainable, theymay not be available at a reasonable cost or multiple licenses may be needed for the same product (e.g., stacked royalties). We could therefore incursubstantial costs related to royalty payments for licenses obtained from third parties, which could negatively affect our gross margins. Further, we couldencounter delays in product introductions, or interruptions in product sales, as we develop alternative methods or products. In some cases, we do not or may not control the prosecution, maintenance, or filing of the patents or patent applications to which we hold licenses, orthe enforcement of these patents against third parties. As a result, we cannot be certain that drafting or prosecution of the licensed patents and patentapplications by the licensors have been or will be conducted in compliance with applicable laws and regulations or will result in valid and enforceablepatents and other intellectual property rights.Certain of the U.S. patent rights we own, have licensed or may license relate to technology that was developed with U.S. government grants, in whichcase the U.S. government has certain rights in those inventions, including, among others, march-in license rights. In addition, federal regulations imposecertain domestic manufacturing requirements with respect to any products within the scope of those U.S. patent claims.We may be involved in lawsuits to protect or enforce our patent or other proprietary rights, to determine the scope, coverage and validity of others’ patentor other proprietary rights, or to defend against third-party claims of intellectual property infringement, any of which could be time-intensive and costlyand may adversely impact our business or stock price.We may from time to time receive notices of claims of infringement and misappropriation or misuse of other parties’ proprietary rights, including withrespect to third-party trade secrets, infringement by us of third-party patents and trademarks or other rights, or challenges to the validity or enforceability ofour patents, trademarks or other rights. Some of these claims may lead to litigation. We cannot assure investors that such actions will not be asserted orprosecuted against us or that we will prevail in any or all such actions.Litigation may be necessary for us to enforce our patent and other proprietary rights or to determine the scope, coverage and validity of the proprietaryrights of others. The outcome of any litigation or other proceeding is inherently uncertain and might not be favorable to us. In addition, any litigation thatmay be necessary in the future could result in substantial costs, even if we were to prevail, and diversion of resources and could have a material adverse effecton our business, operating results or financial condition.60As we move into new markets and applications for our products, incumbent participants in such markets may assert their patents and other proprietaryrights against us as a means of slowing our entry into such markets or as a means to extract substantial license and royalty payments from us. Our competitorsand others may now and in the future have significantly larger and more mature patent portfolios than we currently have. In addition, future litigation mayinvolve patent holding companies or other adverse patent owners who have no relevant product revenue and against whom our own patents may providelittle or no deterrence or protection. Therefore, our commercial success may depend in part on our non-infringement of the patents or proprietary rights ofthird parties. Numerous significant intellectual property issues have been litigated, and will likely continue to be litigated, between existing and newparticipants in our existing and targeted markets and competitors may assert that our products infringe their intellectual property rights as part of a businessstrategy to impede our successful entry into those markets. We have not conducted comprehensive freedom-to-operate searches to determine whether thecommercialization of our products or other business activities would infringe patents issued to third parties. Third parties may assert that we are employingtheir proprietary technology without authorization. In addition, our competitors and others may have patents or may in the future obtain patents and claimthat use of our products infringes these patents. We could incur substantial costs and divert the attention of our management and technical personnel indefending against any of these claims. Parties making claims against us may be able to obtain injunctive or other relief, which could block our ability todevelop, commercialize and sell products, and could result in the award of substantial damages against us. In the event of a successful claim of infringementagainst us, we may be required to pay damages and obtain one or more licenses from third parties, or be prohibited from selling certain products. We may notbe able to obtain these licenses at a reasonable cost, if at all. We could therefore incur substantial costs related to royalty payments for licenses obtained fromthird parties, which could negatively affect our gross margins. In addition, we could encounter delays in product introductions while we attempt to developalternative methods or products to avoid infringing third-party patents or proprietary rights. Defense of any lawsuit or failure to obtain any of these licenseson favorable terms could prevent us from commercializing products, and the prohibition of sale of any of our products could materially affect our ability togrow and gain market acceptance for our products.Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some ofour confidential information could be compromised by disclosure during this type of litigation. In addition, during the course of this kind of litigation, therecould be public announcements of the results of hearings, motions or other interim proceedings or developments. If securities analysts or investors perceivethese results to be negative, it could have a substantial adverse effect on the price of our common stock.In addition, our agreements with some of our suppliers, distributors, customers and other entities with whom we do business require us to defend orindemnify these parties to the extent they become involved in infringement claims against us, including the claims described above. We could alsovoluntarily agree to defend or indemnify third parties in instances where we are not obligated to do so if we determine it would be important to our businessrelationships. If we are required or agree to defend or indemnify any of these third parties in connection with any infringement claims, we could incursignificant costs and expenses that could adversely affect our business, operating results, or financial condition.We may be subject to damages resulting from claims that we or our employees have wrongfully used or disclosed alleged trade secrets of our employees’former employers.Many of our employees were previously employed at other medical diagnostic companies, including our competitors or potential competitors.Although no claims against us are currently pending, we may be subject to claims that these employees or we have inadvertently or otherwise used ordisclosed trade secrets or other proprietary information of their former employers. Litigation may be necessary to defend against these claims. If we fail indefending such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights. A loss of key research personnel workproduct could hamper or prevent our ability to commercialize certain potential products, which could severely harm our business. Even if we are successful indefending against these claims, litigation could result in substantial costs and be a distraction to management.Our products contain third-party open source software components, and failure to comply with the terms of the underlying open source software licensescould restrict our ability to sell our products.Our products contain software tools licensed by third-party authors under “open source” licenses. Use and distribution of open source software mayentail greater risks than use of third-party commercial software, as open source licensors generally do not provide warranties or other contractual protectionsregarding infringement claims or the quality of the code. Some open source licenses contain requirements that we make available source code formodifications or derivative works we create based upon the type of open source software we use. If we combine our proprietary software with open sourcesoftware in a certain manner, we could, under certain open source licenses, be required to release the source code of our proprietary software to the public.This would allow our competitors to create similar products with less development effort and time and ultimately could result in a loss of product sales.Although we monitor our use of open source software to avoid subjecting our products to conditions we do not intend, the terms of many open sourcelicenses have not been interpreted by U.S. courts, and there is a risk that these licenses could be construed in a61way that could impose unanticipated conditions or restrictions on our ability to commercialize our products. Moreover, we cannot assure investors that ourprocesses for controlling our use of open source software in our products will be effective. If we are held to have breached the terms of an open sourcesoftware license, we could be required to seek licenses from third parties to continue offering our products on terms that are not economically feasible, to re-engineer our products, to discontinue the sale of our products if re-engineering could not be accomplished on a timely basis, or to make generally available,in source code form, our proprietary code, any of which could adversely affect our business, operating results, and financial condition.We use third-party software that may be difficult to replace or cause errors or failures of our products that could lead to lost customers or harm to ourreputation.We use software licensed from third parties in our products. In the future, this software may not be available to us on commercially reasonable terms, orat all. Any loss of the right to use any of this software could result in delays in the production of our products until equivalent technology is either developedby us, or, if available, is identified, obtained and integrated, which could harm our business. In addition, any errors or defects in third-party software, or otherthird-party software failures could result in errors, defects or cause our products to fail, which could harm our business and be costly to correct. Many of theseproviders attempt to impose limitations on their liability for such errors, defects or failures, and if enforceable, we may have additional liability to ourcustomers or third-party providers that could harm our reputation and increase our operating costs.We will need to maintain our relationships with third-party software providers and to obtain software from such providers that do not contain anyerrors or defects. Any failure to do so could adversely impact our ability to deliver reliable products to our customers and could harm our results ofoperations.Risks Related to Being a Public CompanyIf we fail to maintain proper and effective internal controls, our ability to produce accurate financial statements on a timely basis could be impaired.We are subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act and the rules and regulations of The NASDAQ StockMarket, or NASDAQ. The Sarbanes-Oxley Act requires, among other things, that we maintain effective disclosure controls and procedures. Internal controlover financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financialstatements in accordance with accounting principles generally accepted in the United States, or U.S. GAAP. For the year ending December 31, 2016, we haveperformed system and process evaluation and testing of our internal controls over financial reporting to allow management to report on the effectiveness ofour internal controls over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act. This has required and will require that we incursubstantial additional professional fees and internal costs to expand our accounting and finance functions and that we expend significant management effortsas we continue to make this assessment and ensure maintenance of proper internal controls on an ongoing basis.If we are not able to comply with the requirements of Section 404 of the Sarbanes-Oxley Act in a timely manner, or if we fail to establish and maintainproper and effective internal control over financial reporting, we may not be able to produce timely and accurate financial statements, and our ability toaccurately report our financial results could be adversely affected. If that were to happen, the market price of our stock could decline and we could be subjectto sanctions or investigations by NASDAQ, the Securities and Exchange Commission, or SEC, or other regulatory authorities.Complying with the laws and regulations affecting public companies will increase our costs and the demands on management and could harm ouroperating results.As a public company, and particularly after we cease to be an “emerging growth company,” we will incur significant legal, accounting and otherexpenses that we did not incur as a private company. In addition, the Sarbanes-Oxley Act and rules subsequently implemented by the SEC and NASDAQimpose numerous requirements on public companies, including requiring changes in corporate governance practices. Also, the Exchange Act requires, amongother things, that we file annual, quarterly and current reports with respect to our business and operating results. Our management and other personnel willneed to devote a substantial amount of time to compliance with these laws and regulations. These requirements have increased and will continue to increaseour legal, accounting, and financial compliance costs and have made and will continue to make some activities more time consuming and costly. Forexample, we expect these rules and regulations to make it more difficult and more expensive for us to obtain director and officer liability insurance, and wemay be required to accept reduced policy limits and coverage or to incur substantial costs to maintain the same or similar coverage. These rules andregulations could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors or our board committees or asexecutive officers.62As an “emerging growth company,” we expect to avail ourselves of the exemption from the requirement that our independent registered publicaccounting firm attest to the effectiveness of our internal control over financial reporting under Section 404. However, we may no longer avail ourselves ofthis exemption when we cease to be an “emerging growth company.” When our independent registered public accounting firm is required to undertake anassessment of our internal control over financial reporting, the cost of our compliance with Section 404 will correspondingly increase. Our compliance withapplicable provisions of Section 404 will require that we incur substantial accounting expense and expend significant management time on compliance-related issues as we implement additional corporate governance practices and comply with reporting requirements. Moreover, if we are not able to complywith the requirements of Section 404 applicable to us in a timely manner, or if we or our independent registered public accounting firm identifies deficienciesin our internal control over financial reporting that are deemed to be material weaknesses, the market price of our stock could decline and we could be subjectto sanctions or investigations by the SEC or other regulatory authorities, which would require additional financial and management resources.Furthermore, investor perceptions of our company may suffer if deficiencies are found, and this could cause a decline in the market price of our stock.Irrespective of compliance with Section 404, any failure of our internal control over financial reporting could have a material adverse effect on our statedoperating results and harm our reputation. If we are unable to implement these requirements effectively or efficiently, it could harm our operations, financialreporting, or financial results and could result in an adverse opinion on our internal controls from our independent registered public accounting firm.We are an “emerging growth company,” and any decision on our part to comply only with certain reduced reporting and disclosure requirementsapplicable to emerging growth companies could make our common stock less attractive to investors.We are an “emerging growth company,” as defined in the JOBS Act, enacted in April 2012, and, for as long as we continue to be an “emerging growthcompany,” we may choose to take advantage of exemptions from various reporting requirements applicable to other public companies but not to “emerginggrowth companies,” including, but not limited to, not being required to have our independent registered public accounting firm audit our internal controlover financial reporting under Section 404, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements,and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachutepayments not previously approved. We could be an “emerging growth company” for up to five years following the completion of our May 5, 2015 IPO,however, we would cease to be an “emerging growth company” before the end of that five-year period as of the following December 31, if we have more than$1.0 billion in annual revenue, or if the market value of our common stock that is held by non-affiliates exceeds $700 million as of June 30 of any year, or asof the date we issue more than $1.0 billion of non-convertible debt over a three-year period. We cannot predict if investors will find our common stock lessattractive if we choose to rely on these exemptions. If some investors find our common stock less attractive as a result of any choices to reduce futuredisclosure, there may be a less active trading market for our common stock and our stock price may be more volatile.63Risks Related to Our Common StockWe may not be able to satisfy the applicable continued listing requirements of NASDAQ.Our common stock is currently listed on The NASDAQ Global Market under the symbol “HTGM.” On August 15, 2016, we received notice fromNASDAQ that our stockholders’ equity as reported in our Quarterly Report on Form 10-Q for the quarter ended June 30, 2016 did not satisfy The NASDAQGlobal Market continued listing requirements. Following our submission to NASDAQ of a plan to regain compliance with the stockholders’ equityrequirements in September 2016, NASDAQ granted us an extension until February 13, 2017 to regain compliance with the stockholders’ equity requirement.On February 14, 2017, we received a letter (the “Delisting Notice”) from NASDAQ stating that we did not regain compliance with the stockholders’ equityrequirement and that, as a result, our common stock would be removed from listing unless we requested on appeal to a NASDAQ Hearings Panel. OnFebruary 21, 2017, we appealed the delisting determination to a NASDAQ Hearings Panel (the “Panel”), pursuant to the procedures set forth in the NASDAQListing Rule 5800 series. The hearing request will stay any delisting action in connection with the Delisting Notice and allow the continued listing of ourcommon stock on The NASDAQ Global Market until the Panel renders a decision. A hearing before the Panel has been scheduled for March 30, 2017. Therecan be no assurance that we will be successful in our appeal before the Panel or that we will otherwise be able to regain and maintain compliance with thestockholders’ equity requirement or satisfy alternative criteria for continued listing on The NASDAQ Global Market, or for listing on any other tier ofNASDAQ, such as The NASDAQ Capital Market. If we are not afforded additional time by the Panel to regain compliance or if we are afforded additional timebut are unable to timely regain compliance, our common stock will be delisted from trading on NASDAQ. The delisting of our common stock from trading onNASDAQ may have a material adverse effect on the market for, and liquidity and price of, our common stock and impair our ability to raise capital. Delistingfrom NASDAQ could also have other negative results, including, without limitation, the potential loss of confidence by customers and employees, the loss ofinstitutional investor interest and fewer business development opportunities. If our common stock is delisted from trading on NASDAQ, trading of ourcommon stock could be conducted in the over-the-counter market or on an electronic bulletin board established for unlisted securities such as the OTCMarkets or OTC Bulletin Board. In such event, it could become more difficult to dispose of or obtain accurate quotations for the price of our common stock,and there may also be a reduction in our coverage by security analysts and the news media, which may cause the price of our common stock to declinefurther.We expect that our stock price will fluctuate significantly.The trading price of our common stock may be highly volatile and could be subject to wide fluctuations in response to various factors, some of whichare beyond our control. These factors include: •actual or anticipated quarterly variation in our results of operations or the results of our competitors; •announcements by us or our competitors of new products, significant contracts, commercial relationships or capital commitments; •failure to obtain or delays in obtaining product approvals or clearances from the FDA or foreign regulators; •adverse regulatory or reimbursement announcements; •issuance of new or changed securities analysts’ reports or recommendations for our stock; •developments or disputes concerning our intellectual property or other proprietary rights; •commencement of, or our involvement in, litigation; •market conditions in the life sciences and molecular diagnostics markets; •manufacturing disruptions; •any future sales of our common stock or other securities; •any change to the composition of our board of directors, executive officers or key personnel; •our failure to meet applicable NASDAQ listing standards and the possible delisting of our common stock from NASDAQ; •announcements by us or our competitors of significant acquisitions, strategic partnerships, joint ventures or capital commitments; •general economic conditions and slow or negative growth of our markets; and •the other factors described in this report under the caption “Risk Factors – Risks Related to Our Common Stock.”The stock market in general, and market prices for the securities of health technology companies like ours in particular, have from time to timeexperienced volatility that often has been unrelated to the operating performance of the underlying companies.64These broad market and industry fluctuations may adversely affect the market price of our common stock, regardless of our operating performance. In severalrecent situations where the market price of a stock has been volatile, holders of that stock have instituted securities class action litigation against thecompany that issued the stock. If any of our stockholders were to bring a lawsuit against us, the defense and disposition of the lawsuit could be costly anddivert the time and attention of our management and harm our operating results.In addition, to date our common stock has generally been sporadically and thinly traded. As a consequence, the trading of relatively small quantitiesof our shares may disproportionately influence the price of our common stock in either direction. The price for our common stock could decline precipitouslyif even a moderate amount of our common stock is sold on the market without commensurate demand. If securities or industry analysts do not publish research reports about our business, or if they issue an adverse opinion about our business, our stock priceand trading volume could decline.The trading market for our common stock will be influenced by the research and reports that industry or securities analysts publish about us or ourbusiness. If one or more of the analysts who cover us issues an adverse opinion about our company, our stock price would likely decline. If one or more ofthese analysts ceases coverage of us or fails to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could cause ourstock price or trading volume to decline.Sales of a substantial number of shares of our common stock in the public market could cause our stock price to fall.Sales of a substantial number of shares of our common stock in the public market or the perception that these sales might occur, could depress themarket price of our common stock and could impair our ability to raise capital through the sale of additional equity securities. We are unable to predict theeffect that sales may have on the prevailing market price of our common stock.Certain holders of our securities are entitled to rights with respect to the registration of their shares under the Securities Act of 1933, as amended, or theSecurities Act. Registration of these shares under the Securities Act would result in the shares becoming freely tradable without restriction under theSecurities Act. Any sales of securities by these stockholders could have a material adverse effect on the trading price of our common stock.Future sales and issuances of our common stock or rights to purchase common stock, including pursuant to our equity incentive plans, could result inadditional dilution of the percentage ownership of our stockholders and could cause our stock price to fall.We expect that significant additional capital will be needed in the future to continue our planned operations. We may sell common stock, convertiblesecurities or other equity securities in one or more transactions at prices and in a manner we determine from time to time. If we sell common stock, convertiblesecurities or other equity securities in more than one transaction, investors may be materially diluted by these and subsequent sales. New investors could alsogain rights superior to our existing stockholders.Pursuant to our 2014 Equity Incentive Plan, or 2014 Plan, our board of directors is authorized to grant stock options and other equity-based awards toour employees, directors and consultants. The number of shares available for future grant under the 2014 Plan will automatically increase on January 1 ofeach year by 4% of the total number of shares of our common stock outstanding on December 31 of the preceding calendar year, subject to the ability of ourboard of directors to take action to reduce the size of the increase in any given year. In addition, our board of directors approved the granting of rights toeligible employees to purchase shares of our common stock pursuant to our 2014 Employee Stock Purchase Plan, or ESPP, beginning January 1, 2016. Thenumber of shares of our common stock reserved for issuance under the ESPP will automatically increase on January 1 of each calendar year by the lesserof 1% of the total number of shares of our common stock outstanding on December 31 of the preceding calendar year and 195,000 shares, subject to theability of our board of directors to take action to reduce the size of the increase in any given year. Currently, we plan to register the increased number ofshares available for issuance under the 2014 Plan and ESPP each year. Increases in the number of shares available for future grant or purchase may result inadditional dilution, which could cause our stock price to decline.Our principal stockholders and management own a significant percentage of our stock and will be able to exercise significant influence over matterssubject to stockholder approval.Our executive officers, directors and principal stockholders, together with their respective affiliates, beneficially owned a majority of our capital stockat March 17, 2017. Accordingly, our executive officers, directors and principal stockholders acting together will be able to determine the composition of theboard of directors, and may be able to approve all matters requiring stockholder approval, including mergers and other business combinations, and continueto have significant influence over our operations. This concentration of ownership could have the effect of delaying or preventing a change in our control orotherwise65discouraging a potential acquirer from attempting to obtain control of us, which in turn could have a material adverse effect on our stock price and mayprevent attempts by our stockholders to replace or remove the board of directors or management.We do not intend to pay dividends on our common stock so any returns will be limited to the value of our stock.We have never declared or paid any cash dividend on our common stock. We currently anticipate that we will retain future earnings for thedevelopment, operation and expansion of our business and do not anticipate declaring or paying any cash dividends for the foreseeable future. In addition,our ability to pay cash dividends is currently prohibited by the terms of our debt facility, and any future debt financing arrangement may contain termsprohibiting or limiting the amount of dividends that may be declared or paid on our common stock. Any return to stockholders will therefore be limited tothe appreciation of their stock.Provisions in our amended and restated certificate of incorporation and bylaws, as well as provisions of Delaware law, could make it more difficult for athird party to acquire us or increase the cost of acquiring us, even if doing so would benefit our stockholders or remove our current management.Some provisions of our charter documents and Delaware law may have anti-takeover effects that could discourage an acquisition of us by others, evenif an acquisition would be beneficial to our stockholders and may prevent attempts by our stockholders to replace or remove our current management. Theseprovisions include: •authorizing the issuance of “blank check” preferred stock, the terms of which may be established and shares of which may be issued withoutstockholder approval; •limiting the removal of directors by the stockholders; •creating a staggered board of directors; •prohibiting stockholder action by written consent, thereby requiring all stockholder actions to be taken at a meeting of our stockholders; •eliminating the ability of stockholders to call a special meeting of stockholders; and •establishing advance notice requirements for nominations for election to the board of directors or for proposing matters that can be acted uponat stockholder meetings.These provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more difficultfor stockholders to replace members of our board of directors, which is responsible for appointing the members of our management. In addition, we are subjectto Section 203 of the Delaware General Corporation Law, which generally prohibits a Delaware corporation from engaging in any of a broad range ofbusiness combinations with an interested stockholder for a period of three years following the date on which the stockholder became an interestedstockholder, unless such transactions are approved by our board of directors. This provision could have the effect of delaying or preventing a change ofcontrol, whether or not it is desired by or beneficial to our stockholders. Further, other provisions of Delaware law may also discourage, delay or preventsomeone from acquiring us or merging with us.Item 1B. Unresolved Staff CommentsNone.Item 2. Properties.Our 30,100 square feet of corporate facilities, including our administrative, laboratory and manufacturing spaces, are located in Tucson, Arizona. Weoccupy these facilities pursuant to two separate leases. The first lease concerns 17,500 square feet housing our administrative, manufacturing, and lab servicesfacilities. The second lease concerns 12,600 square feet of space used for our research and development facilities. We amended these facilities leases inAugust 2015 to, among other things, align and extend the lease terms to expire in January 2021. In connection with the first lease term extension the landlordagreed to perform certain capital improvements to expand and improve the existing manufacturing facilities. In addition, we completed the expansion andimprovement of our administrative and research and development facilities, resulting in the capitalization of additional leasehold improvements in 2016,which will be amortized over the remaining life of the lease. Base rent payable under the first lease is approximately $27,000 per month, and base rentpayable under the second lease is approximately $16,000 per month, in each case for the remaining terms of the respective leases. The aggregate rentspayable over the renewal term of the amended first lease represent an increase of $804,000, over the prior term rental rates for a five-year period. The amendedsecond lease specified no rent increase over the prior term and the annual rent increases for the applicable space were eliminated.66Our landlord holds security deposits equal to a total of approximately $23,000. We believe that our existing facilities are adequate to meet ourbusiness requirements for the reasonably foreseeable future and that additional space will be available on commercially reasonable terms, if required.Item 3. Legal Proceedings.We are not engaged in any material legal proceedings. However, in the normal course of business, we may from time to time be named as a party tolegal claims, actions and complaints, including matters involving employment, intellectual property others.Item 4. Mine Safety Disclosures.Not applicable. 67PART IIItem 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.Market InformationOur common stock is traded on The NASDAQ Global Market under the symbol “HTGM.” Trading of our common stock commenced on May 6, 2015in connection with our initial public offering. The following table sets forth, for the periods indicated, the high and low sales prices for our common stock asreported on The NASDAQ Global Market. Year ended December 31, 2015 High Low Second quarter (beginning May 6, 2015) 19.75 10.22 Third quarter 13.10 4.64 Fourth quarter 9.59 4.08 Year ended December 31, 2016 High Low First quarter 4.68 2.03 Second quarter 4.17 2.07 Third quarter 3.09 2.13 Fourth quarter 4.45 1.82 On March 17, 2017, the last reported sale price of our common stock was $2.06 per share.HoldersAs of March 17, 2017, there were approximately 192 holders of record of our common stock. The actual number of stockholders is greater than thisnumber of record holders and includes stockholders who are beneficial owners but whose shares are held in street name by brokers and other nominees.DividendsWe have never declared or paid any cash dividends on our common stock. We anticipate that we will retain all available funds and any futureearnings, if any, for use in the operation of our business and do not anticipate paying cash dividends in the foreseeable future. In addition, our term loanagreement materially restricts, and future debt instruments we issue may materially restrict, our ability to pay dividends on our common stock. Payment offuture cash dividends, if any, will be at the discretion of the board of directors after considering various factors, including our financial condition, operatingresults, current and anticipated cash needs, the requirements of current or then-existing debt instruments and other factors the board of directors deemsrelevant.Use of ProceedsOn May 5, 2015, we commenced our IPO pursuant to a registration statement on Form S-1 (File 333-201313) that was declared effective by the SEC onMay 5, 2015 and registered an aggregate of 4,105,500 shares of our common stock for sale to the public at a price of $14.00 per share and an aggregateoffering price of approximately $57.5 million. On May 11, 2015 and May 29, 2015, we sold 3,570,000 and 90,076 shares, respectively, to the public at aprice of $14.00 per share for an aggregate gross offering price of $51.3 million. Leerink Partners acted as book-running manager for the offering, andCanaccord Genuity and JMP Securities served as co-managers for the offering.Underwriting discounts and commissions connected with the offering totaled approximately $3.6 million. We incurred additional costs ofapproximately $2.3 million in offering expenses, which when added to the underwriting discounts and commissions paid by us, amounts to total fees andcosts of approximately $5.9 million. Thus, net offering proceeds to us, after deducting underwriting discounts and commissions and offering costs, wereapproximately $45.4 million. No offering costs were paid directly or indirectly to any of our directors or officers (or their associates) or persons owning tenpercent or more of any class of our equity securities or to any of our other affiliates. Pending their use, the net proceeds from our IPO are being held in cash and cash equivalents or used to purchase low risk available-for-sale securities,of which $4.3 million were short-term available-for-sale securities, at fair value at December 31, 2016. As of December 31, 2016, we have expendedapproximately $44.6 million of the proceeds from our IPO on the following: (1) approximately $22.3 for sales and marketing and general and administrativeexpenses; (2) approximately $9.4 million for research and development expansion efforts, including expansion of our research and development team anddevelopment of new applications and68profiling panels; (3) approximately $6.1 million for the payment of principal and interest on our growth term loan; and (4) approximately $6.8 million topurchase inventory and to fund working capital and other general corporate purposes.There has been no material change in the expected use of net proceeds from our IPO as described in our final prospectus filed with the SEC on May 6,2015.Item 6. Selected Financial Data.We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information otherwise requiredunder this item. 69Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.You should read the following discussion and analysis together with our financial statements and related notes included elsewhere in this AnnualReport. The following discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially fromthose expressed or implied in any forward-looking statements due to various factors, including those set forth under the caption “Item 1A. Risk Factors.” OverviewWe are a commercial stage company that develops and markets products and services based on a proprietary technology that facilitates the routine useof targeted molecular profiling. Molecular profiling is the collection of information about multiple molecular targets, such as DNA and RNA, also calledbiomarkers, in a biological sample. Molecular profiling information has many important applications, from basic research to molecular diagnostics inpersonalized medicine. Our technology can be used throughout that range of applications, which is just one of its many benefits. Our focus is on clinicalapplications. Our primary customer segments include biopharmaceutical companies, academic research centers and molecular testing laboratories.As part of our business model, we seek to leverage key business drivers in molecular profiling, including the acceleration of precision medicine, themigration of molecular testing to next generation sequencing, the movement to less invasive biopsies, the need for greater diagnostic sensitivity, the need toconform to changing healthcare economics and the need for automation and an easily deployable workflow. Our products include instrumentation (orplatforms), consumables, including assay kits, and software analytics that, as an integrated system, automate sample processing and can quickly, robustly andsimultaneously profile tens, hundreds or thousands of molecular targets from samples a fraction of the size required by prevailing technologies. Our objectiveis to establish our solutions as the standard in molecular profiling, and to make their benefits accessible to all molecular labs from research to the clinic. Webelieve that our target customers desire high quality molecular profiling information in a multiplexed panel format from increasingly smaller and lessinvasive samples, with the ability to collect such information locally to minimize turnaround time and cost.In 2014, we launched our HTG EdgeSeq technology, which generates a molecular profiling library for detection of RNA using NGS. Our HTGEdgeSeq assays are automated on either our HTG Edge or HTG EdgeSeq platform. Our HTG Edge platform is capable of running both our original, plate-based assays and our NGS-based HTG EdgeSeq assays. We continue to support a small number of customers interested in utilizing our plate-based assays (ona custom manufacturing basis); however, in 2016, based on market trends and customer feedback, we shifted our product focus fully to our NGS-based HTGEdgeSeq system. Our innovative platforms and menu of molecular profiling panels are being utilized by a wide range of customers includingbiopharmaceutical companies, academic institutions and molecular labs to simultaneously analyze a comprehensive set of molecular information fromvaluable clinical samples and improve the lab’s workflow efficiency. Customers can also obtain the advantages of our proprietary technologies by engagingour VERI/O laboratory for pre-clinical and clinical research-related services. We currently market several proprietary molecular profiling panels that addressthe needs of customers in translational research, biomarker discovery and potentially companion diagnostics. In addition, we have a focused developmentpipeline that includes planned panels for translational research, drug development and molecular diagnostics. Our product strategy is to develop a suite ofprofiling panels with initial focus in immuno-oncology and next generation pathology.We have incurred significant losses since our inception, and we have never been profitable. We incurred net losses of $26.0 million and $21.4 millionfor the years ended December 31, 2016 and 2015, respectively, and had an accumulated deficit of $115.6 million as of December 31, 2016. As of December31, 2016, we had available cash and cash equivalents totaling approximately $7.5 million and investments in highly liquid corporate and government debtsecurities totaling $4.3 million and had current liabilities of approximately $10.0 million plus an additional $14.0 million in long-term liabilities primarilyattributable to our growth term loan and NuvoGen obligation. We believe that these factors raise substantial doubt about our ability to continue as a goingconcern. While we believe that our existing cash resources are sufficient to fund our operations until mid-way through the second quarter of 2017, we cannotprovide assurances that changed circumstances will not result in the depletion of our capital resources more rapidly than we currently anticipate.We will need to raise additional capital in the near future to fund our continued operations. Additional capital may not be available in amountsneeded by us. Even if sufficient capital is available to us, it might be available only on unfavorable terms. If we are unable to raise additional capital insufficient amounts or on terms acceptable to us, we may have to significantly reduce expenses, sell assets (potentially at a discount to their fair value orcarrying value), enter into relationships with third parties to develop or commercialize products or technologies that we otherwise would have sought todevelop or commercialize independently, cease operations altogether, pursue an acquisition of our company at a price that may result in up to a total loss oninvestment to our stockholders, file for bankruptcy, seek other protection from creditors, or liquidate all of our assets. In addition, if we default under our termloan agreement, our lenders could foreclose on our assets, including substantially all of our cash which is held in accounts with our lenders.70Factors Affecting our PerformanceOur business model has evolved and expanded since our IPO was completed in May 2015 primarily due to our success in the development of abiopharmaceutical customer base, entry into collaboration agreements with certain biopharmaceutical customers and changing customer demand fromproduct sales to service offerings in our VERI/O laboratory. We believe the mix of product- and service-based revenues will continue to evolve over time asour product menu expands and, particularly, if we successfully develop one or more companion diagnostic products as a result of our work withbiopharmaceutical customers. We believe that our future results of operations are dependent on several factors discussed below. While each of these areaspresent significant opportunities for us, they also pose significant risks and challenges that we must successfully address. See the section entitled “RiskFactors” for further discussion of these risks.Biopharmaceutical Biomarker and Companion Diagnostic SolutionsBiopharmaceutical companies are working to improve the efficacy of their drugs by better targeting appropriate patients for specific therapies. Ourproducts and services are being used by our biopharmaceutical company customers to identify molecular biomarkers that can help determine which patientswill or will not respond to a drug candidate. These customers can obtain the benefits of our technology by purchasing our platform and assays for theirinternal use or by engaging us to perform certain services. Due to the increasing demand of our biopharmaceutical customers for services throughout 2016,we announced and branded our VERI/O service laboratory. Our VERI/O laboratory offers support for our biopharmaceutical customers in biomarker researchand companion diagnostic development, and further expands our traditional service offerings, including molecular profiling of retrospective cohorts tosupport development of targeted and immuno-oncology therapies, building custom research-use-only panels to support early stage clinical programs anddeveloping investigational-use companion diagnostic assays for use in Phase 3 registration trials. We believe our product and service solutions provide uswith a growing number of opportunities to collaborate with biopharmaceutical companies in their drug development programs. Because our technology isbeing used for biomarker detection and, ultimately, patient registration in such programs, we believe we are well positioned to manufacture andcommercialize high-value companion diagnostic assays required in the corresponding drug approvals. We track our pipeline of biopharmaceutical companyprograms as well as the number of such customers with whom we are working to measure our progress.Customer Adoption of HTG TechnologyToday we believe the primary measure of adoption for our technology is our companion diagnostic pipeline with biopharmaceutical companiesdiscussed above. In the future, we expect increased sales of our instruments and consumables to our pharma customers or their contractors to support theirinternal research and drug development efforts and, as discussed below, to other customer segments as we add to our assay menu and, especially, as we launchhigh value diagnostic, including companion diagnostic, products. We currently market and sell on a limited and targeted basis our research use onlyapplications to biopharmaceutical companies, academic translational research centers and in Europe, molecular testing labs.Our ability to increase instrument and consumable revenue depends on several factors, including (i) adoption of our HTG EdgeSeq platforms by ourcustomer base, including increasing market share for our proprietary panels for the research market; (ii) the efforts of our sales and marketing teams todemonstrate the utility of our products and technology; (iii) our ability to develop and market novel molecular profiling panels designed to meet customerneeds, including unmet medical needs; (iv) our ability to demonstrate the benefits of our products to key opinion leaders so they will publish informationsupporting those benefits; (v) pricing and reimbursement; (vi) our ability to expand the addressable market of our HTG EdgeSeq platform through thedevelopment of new applications; (vii) our product capabilities compared with competition; and (viii) successful outcomes to our companion diagnosticcollaborations. Given the length of our sales cycle, we have in the past experienced, and will likely in the future experience, fluctuations in our instrumentand consumables sales on a period-to-period basis.A key element of increasing adoption of our technology measured by instrument placements is our assay and panel “menu.” Menu is defined as whatassays are available for use on the instruments to satisfy customer needs. To sell additional instruments, grow our installed base and drive larger consumableannuities we must develop and commercialize new assays. Our arrangements with biopharmaceutical companies are expected to generate new menu items aswell as our diagnostic development strategies in immuno-oncology and next generation pathology. As of December 31, 2016, we had an installed base of 47HTG Edge and HTG EdgeSeq systems in various stages of use, including units that are under evaluation. We are focused on high quality instrumentplacements and consumable pull through as the primary indicators of commercial adoption and success in our business. Timing and effectiveness of research and development expensesOur spending on research and development may vary substantially from period to period due to the availability and cost of clinical samples,prioritization of research and development projects or timing of milestone payments under technology development71agreements. We have instituted a stage-gate based method of new product development managed by an innovation council which is led by our ChiefExecutive Officer. All programs are reviewed by time, quality and budgetary metrics at each phase of the project.Financial Operations Overview and Results of OperationsComparison of the Years Ended December 31, 2016 and 2015 Years Ended December 31, Change 2016 2015 $ % Revenue: Product $2,759,942 $3,532,028 $(772,086) (22%)Service 2,372,788 183,758 2,189,030 1191%Other — 325,789 (325,789) (100%)Total revenue 5,132,730 4,041,575 1,091,155 27%Cost of revenue 4,135,884 3,335,511 800,373 24%Gross margin 996,846 706,064 290,782 41%Gross margin percentage 19% 17% Operating expenses: Selling, general and administrative 17,427,777 14,994,410 2,433,367 16%Research and development 7,900,311 4,601,718 3,298,593 72%Total operating expenses 25,328,088 19,596,128 5,731,960 29%Operating loss (24,331,242) (18,890,064) (5,441,178) 29%Other income (expense) Loss from change in stock warrant valuation — (239,683) 239,683 (100%)Interest expense (1,867,466) (1,719,475) (147,991) 9%Interest income 112,413 85,859 26,554 31%Loss on settlement of convertible debt — (705,217) 705,217 (100%)Other 56,863 80,978 (24,115) (30%)Total other income (expense) (1,698,190) (2,497,538) 799,348 (32%)Net loss before income taxes (26,029,432) (21,387,602) (4,641,830) 22%Income taxes 10,118 10,189 (71) (1%)Net loss $(26,039,550) $(21,397,791) $(4,641,759) 22% RevenueWe generate revenue from the sale of our HTG Edge and HTG EdgeSeq platforms and our consumables, which consist primarily of our proprietarymolecular profiling panels and other assay components. Together, all such consumables may be referred to as assays, assay kits or kits. We also generaterevenue through the sale of services related to our proprietary technology, such as sample processing, custom research-use-only assay development and,pursuant to collaboration agreements with our biopharmaceutical customers, development of IVD assays. Because of increased demand for sample processingby our biopharmaceutical customers, a trend that we expect to continue in future reporting periods, we announced and branded of our VERI/O laboratoryservice in the second quarter of 2016. Total revenue for the year ended December 31, 2016 increased by 27% to $5.1 million compared with total revenue of$4.0 million for the year ended December 31, 2015. Product revenueProduct revenue includes revenue from the sale of our HTG Edge and HTG EdgeSeq instruments and related consumables, and was $2.8 millioncompared with $3.5 million for the year ended December 31, 2015, and was comprised of the following: Years Ended December 31, Change 2016 2015 $ % Instruments $522,813 $789,231 $(266,418) (34%)Consumables 2,237,129 2,742,797 (505,668) (18%)Total product sales $2,759,942 $3,532,028 $(772,086) (22%) Revenue from the sale of our instruments for the year ended December 31, 2016 was $523,000 compared with $789,000 for the year ended December31, 2015, and represented 10% and 20% of our total revenue for the years ended December 31, 2016 and 2015, respectively. The decrease in instrumentrevenue from 2016 to 2015 is primarily attributable to our focus on biopharmaceutical72customers whose preference has been to access our technology via services through our VERI/O laboratory. We expect our revenue mix to continue tocontain a higher portion of biopharmaceutical service revenue in the near term until we enter the commercial clinical diagnostic market.Revenue from the sale of consumables is derived from the sale of our research-use-only molecular profiling assays for use on our HTG EdgeSeqplatform and from the sale of custom molecular profiling assays that we have developed for customers. Consumable revenue for the year ended December 31,2016 was $2.2 million compared with $2.7 million for the year ended December 31, 2015, and represented 44% and 68% of our total revenue for the yearsended December 31, 2016 and 2015, respectively. In addition to the increase in biopharmaceutical customer demand for services discussed above, we alsoexperienced a significant reduction in consumable sales to a single customer from 2015 to 2016. The customer completed a large, retrospective sampleanalysis project in late 2015. While this customer continues to place orders for our miRNA panel, its 2016 consumable orders were significantly below their2015 levels. We believe this is not an unusual occurrence in the research market where orders are project driven. Our total consumable sales to all othercustomers increased from 2015 to 2016.Service revenueService revenue consists primarily of sample processing and molecular profiling of retrospective cohorts through our VERI/O laboratory, though italso includes the design of custom panels for biopharmaceutical customers and research services, resulting from research and development collaborationagreements with biopharmaceutical customers. Service revenue represented 46% and 5% of our total revenue for the years ended December 31, 2016 and2015, respectively, and was comprised of the following: Years Ended December 31, Change 2016 2015 $ % Custom assay development $235,818 $101,792 $134,026 132%Sample processing 2,136,970 81,966 2,055,004 2507%Total service revenue $2,372,788 $183,758 $2,189,030 1191% The increase in service revenue for the period ended December 31, 2016 compared with 2015 reflects our success in continuing to grow ourbiopharmaceutical customer base and expand our ability to serve the needs of those customers through our VERI/O laboratory. We have been able to enterinto new and expanding biopharmaceutical collaborations, partnering with biopharmaceutical company customers who have chosen the HTG EdgeSeqsystem for use in their drug development programs, and who primarily prefer to access our technology via services in our VERI/O laboratory. Because ofexisting development agreements with biopharmaceutical customers such as BMS and Merck KGaA, which were entered into in 2016, and continued effortsto expand our services to biopharmaceutical customers going forward, we expect our service revenue may continue to increase in both absolute dollars and asa percentage of total revenue in 2017. Cost of revenue and gross marginCost of revenue includes the aggregate costs incurred in manufacturing, delivering, installing and servicing instruments and consumables, as well asthe costs incurred for services performed for customers in our VERI/O laboratory. The components of our 2016 cost of revenue are material, subcomponentand service costs, manufacturing costs incurred internally (which include direct labor costs), and equipment and infrastructure expenses associated with themanufacturing and distribution of our products. Additionally, internal costs incurred in our VERI/O laboratory, including direct labor and consumables, areincluded in cost of revenue.For the year ended December 31, 2015, cost of revenue also included manufacturing costs that were paid to third-party manufacturers who wereresponsible for the manufacturing of our instruments at that time. We completed capital improvements to our manufacturing facilities the first quarter of2016, at which point we began manufacturing our instruments internally. Further, cost of revenue for the year ended December 31, 2015 included costsassociated with our NIH grant program. For the years ended December 31, 2016 and 2015, cost of revenue included significant fixed costs comprised primarily of manufacturing and serviceheadcount, field service engineers and facilities. Due to the fixed nature of expenses associated with direct labor, equipment and infrastructure, we expect ourcost of revenue as a percentage to decrease over time as we increase product and service revenue, further absorbing these fixed costs. Cost of revenue increased by $800,000, or 24% for the year ended December 31, 2016 compared with the year ended December 31, 2015. Since 2014,we have directed most of our commercial and marketing efforts to our HTG EdgeSeq products that do not utilize our chemiluminescent reader technology.Based on market demand, we discontinued the active marketing of our original HTG Edge technology in December 2016; provided that we will continue tosupport HTG Edge consumable needs for a limited73number of customers on an as-requested custom manufacturing basis for some period of time. The increased cost of revenue in 2016 was primarily due to thewrite off of the remaining $360,000 value of our HTG Edge Reader inventory, the recording of a $133,000 excess inventory reserve for our original HTGEdge system and additional inventory write offs to cost of product revenue of approximately $167,000 relating to our HTG Edge and plate-basedconsumables technology during the year ended December 31, 2016.Despite these non-cash charges, gross margin as a percentage of total revenue improved from 17% for the year ended December 31, 2015 to 19% forthe year ended December 31, 2016. This percent improvement reflects an increase in product and service revenues, allowing us to further absorb our largelyfixed manufacturing costs and an overall the reduction of manufacturing costs resulting from a change to internally manufactured instruments, which beganearly in 2016.Research and development expensesResearch and development expenses represent costs to develop new proprietary panels and corresponding assays, to obtain FDA approval for our firstU.S. IVD assay and to continue to develop and improve our HTG EdgeSeq platform. These expenses include payroll and related expenses, consultingexpenses, laboratory supplies and equipment and amounts incurred under collaborative supply or development agreements. Research and development costsare expensed as incurred. Research and development expenses increased by $3.3 million, or 72%, for the year ended December 31, 2016 compared with theyear ended December 31, 2015. We expect research and development costs to continue to increase in 2017 due to the ongoing development of our V2chemistry and the possible resumption of our Project JANUS development efforts in the second half of 2017. In addition, we expect higher costs fromcollaboration projects under agreements with our biopharmaceutical customers and costs associated with the fourth and final submission for our first PMA.Selling, general and administrative expensesSelling, general and administrative expenses consist primarily of personnel costs for our sales and marketing, regulatory, legal, executive managementand finance and accounting functions. The expenses also include third-party professional and consulting fees incurred by these functions, promotionalexpenses and facility and overhead costs for our administrative offices. Selling, general and administrative expenses increased by $2.4 million, or 16%, forthe year ended December 31, 2016, compared with the year ended December 31, 2015. This year over year increase was primarily a result of operating as apublic company for a full year, including expenses related to compliance with the rules and regulations of the Securities and Exchange Commission and TheNASDAQ Global Market, non-cash stock-based compensation expense, additional director and officer insurance costs, investor relations activities and otheradministrative and professional services. This increase also included higher sales and marketing costs related to a reorganization of our US-based commercialsales team, increased commercial sales activities in Europe, expansion of marketing efforts to accelerate market adoption of our products and commissions onoverall increased revenue generated in 2016.Loss from change in stock warrant valuationLoss from the change in stock warrant valuation for the year ended December 31, 2015 was a result of an increase in the fair value of our preferredstock warrants just prior to the exercise of Series D preferred stock warrants, and the conversion to common stock warrants of our Series C-2 preferred stockwarrants, convertible note warrants and growth term loan warrants at the time of our initial public offering. The increase in the fair value of our preferred stockwarrants until their conversion to common stock warrants was primarily attributable to the proximity to and increased likelihood of completing an initialpublic offering. There was no loss from change in stock warrant valuation for the year ended December 31, 2016.Interest expenseAs of December 31, 2016, we had an obligation due to NuvoGen Research, LLC, or NuvoGen, in the amount of $8.6 million under an asset purchaseagreement and an obligation due to a syndicate of two lending institutions of $11.8 million, net of discount and deferred financing costs under a growth termloan entered into in August 2014 and amended in August 2015 and June 2016.Interest expense relating to borrowings under our term loan agreements and non-cash interest expense related to our obligation to NuvoGen increasedby $148,000 for the year ended December 31, 2016 as compared with the year ended December 31, 2015. The year over year increase was primarily the resultof interest, discount and final fee premium recognized in 2016 on the $5.0 million growth term loan borrowed in March 2016, partially offset by reducedinterest on the original growth term loan and the NuvoGen obligation as principal payments were made on both liabilities in 2016. 74Loss on settlement of convertible debtWith completion of our initial public offering in May 2015, our remaining convertible note debt discount and deferred financing costs relating to theconvertible notes totaling $0.7 million were charged to loss on settlement of convertible debt with the issuance of common stock in settlement of theconvertible notes and related accrued interest. There were no convertible notes outstanding during the year ended December 31, 2016. Cash Flows for the Years Ended December 31, 2016 and 2015The following table summarizes the primary sources and uses of cash for each of the periods presented: Years Ended December 31, 2016 2015 Net cash provided by (used in): Operating activities $(22,234,208) $(19,243,273)Investing activities 24,422,214 (32,184,889)Financing activities 2,025,670 51,108,753 Increase (decrease) in cash and cash equivalents $4,213,676 $(319,409) Operating ActivitiesNet cash used in operating activities for the year ended December 31, 2016 was $22.2 million and reflected (i) the net loss of $26.0 million, (ii) netnon-cash items of $4.1 million, consisting primarily of depreciation and amortization of $1.5 million, amortization of the discount on the NuvoGenobligation of $0.2 million, amortization of the discount, deferred financing costs and final payment premium on the growth term loan of $0.6 million,provision for excess inventory of $0.7 million, stock-based compensation of $0.9 million and accrued interest on available-for-sale securities of $0.2 millionand (iii) a net cash outflow from changes in balances of operating assets and liabilities of $0.3 million. The significant items comprising the changes inbalances of operating assets and liabilities were an increase of $0.7 million in accounts receivable and an increase in deferred revenue of $0.3 million dueprimarily to up-front payments received from development agreements entered into in 2016.Net cash used in operating activities for the year ended December 31, 2015 was $19.2 million and reflected (i) the net loss of $21.4 million, (ii) netnon-cash items of $3.0 million, consisting primarily of amortization and write off at the time of our initial public offering of discount on convertible notes of$0.7 million, depreciation and amortization of $0.7 million, amortization of the discount on the NuvoGen obligation of $0.3 million, amortization of thediscount and final payment premium on the growth term loan of $0.3 million, provision for excess inventory of $0.2 million, stock-based compensation of$0.4 million and a decrease in the warrant valuation of $0.2 million and (iii) a net cash outflow from changes in balances of operating assets and liabilities of$0.9 million. The significant items comprising the changes in balances of operating assets and liabilities were an increase of $0.7 million in inventory and anincrease in prepaid and other of $0.3 million.Investing ActivitiesNet cash provided by investing activities of $24.4 million for the year ended December 31, 2016 consisted primarily of the purchase of $3.4 millionand sales, redemptions and maturities of $29.8 million of available-for-sale securities originally acquired with proceeds from our initial public offering. Thiswas partially offset by investments in leasehold improvements and laboratory equipment of $1.9 million with capital improvements made to ourmanufacturing and research and development facilities during the year.Net cash used in investing activities of $32.2 million for the year ended December 31, 2015 consisted primarily of the purchase of $38.3 million andsales, redemptions and maturities of $7.5 million of available-for-sale securities originally acquired with proceeds from our initial public offering. Additionalinvestment was made in the purchase of $1.3 million of laboratory and office equipment during the year.Financing ActivitiesNet cash provided by financing activities for the year ended December 31, 2016 of $2.0 million included $5.0 million from the draw of our growthterm loan B availability in March 2016 to fund ongoing business operations and $2.0 million in proceeds from an investment in our common stock by astrategic investor, partially offset by $4.4 million in payments on our growth term loan balance, as principal payments resumed in April 2016, and $0.6million in quarterly payments made on our NuvoGen obligation.75Net cash provided by financing activities for the year ended December 31, 2015 of $51.1 million included $47.7 million proceeds from our initialpublic offering, partially offset by $1.0 million deferred offering costs incurred in the period, and $4.5 million in proceeds from convertible notes.Liquidity and Capital ResourcesSince our inception, our operations have primarily been financed through the issuance of our common stock, redeemable convertible preferred stock,the incurrence of debt and cash received from instrument and consumables sales, services revenue and other income. Through December 31, 2016, we hadreceived net proceeds of $52.9 million from issuances of preferred stock, including preferred stock issued on conversion of promissory notes, $45.4 million ofnet proceeds from the issuance of our common stock, $0.8 million in proceeds from a prior term loan, approximately $7.7 million in grants, $15.6 millionfrom our growth term loans (net of $0.4 million original issue discount), $4.5 million from convertible note issuances, $36.4 million from product and servicerevenue and $2.0 million from an investment in our common stock by a private investor. As of December 31, 2016, we had cash, cash equivalents and short-term available-for-sale investments totaling $11.8 million. Our liabilities include $20.6 million of debt outstanding on our growth term loan payable,NuvoGen obligation and capital lease obligations.On May 11, 2015, we completed the initial closing of our initial public offering, where we sold 3,570,000 shares of our common stock at a price of$14.00 per share, which excluded the underwriters’ exercise of their over-allotment option, available for thirty days after May 5, 2015. We receivedadditional net proceeds of approximately $1.3 million with the sale of 90,076 additional shares of our common stock at $14.00 per share pursuant to thepartial exercise by our underwriters of their over-allotment option. We raised approximately $45.4 million in net proceeds from our initial public offering,after deducting underwriting discounts and commissions of $3.6 million and offering expenses of $2.3 million. These costs have been recorded as a reductionof the proceeds received in arriving at the amount recorded in additional paid-in capital. In connection with the closing of the initial public offering, alloutstanding shares of our preferred stock were converted into 2,134,192 shares of common stock.In August 2014, we entered into an asset-secured growth capital term loan with Oxford Finance, LLC and Silicon Valley Bank, at which time weborrowed the first tranche of the term loan in the amount of $11.0 million. The loan accrues interest annually at the rate of 8.5% and matures on September 1,2018, and pursuant to our August 2015 amendment, was payable in monthly interest-only payments through March 31, 2016, followed by equal monthlypayments of principal and interest amortized over the remaining term of the loan will be due. In March 2016, we drew on the remaining $5.0 millionavailability under our Growth Term Loan agreement. This additional principal accrues interest at a rate of 8.75% and is being repaid evenly over the courseof 30 months beginning April 1, 2016.Funding RequirementsWe have had recurring operating losses and negative cash flows from operations since inception, and we had an accumulated deficit of approximately$115.6 million as of December 31, 2016. As of December 31, 2016, we had available cash, cash equivalents and investments in short term available-for-salesecurities of approximately $11.8 million, and had current liabilities of approximately $10.0 million plus an additional $14.0 million in long-term liabilitiesprimarily attributable to our growth term loan and NuvoGen obligation. We believe that our existing resources will be sufficient to fund our plannedoperations and expenditures until mid-way through the second quarter of 2017. However, we cannot provide assurances that our plans will not change or thatchanged circumstances will not result in the depletion of our capital resources more rapidly than we currently anticipate. These circumstances raisesubstantial doubt about our ability to continue as a going concern.Until our revenue reaches a level sufficient to support self-sustaining cash flows, if ever, we will need to raise additional capital to fund our continuedoperations, including our product development and commercialization activities related to our current and future products. Future funding requirements willdepend on a number of factors, including our ability to generate significant product and service revenues, our ability to repay our debt obligations as theybecome due, the cost and timing of establishing additional sales, marketing and distribution capabilities, the ongoing cost of research and developmentactivities, the cost and timing of regulatory clearances and approvals, the effect of competing technology and market developments, the nature and timing ofcompanion diagnostic development collaborations we may establish, and the extent to which we acquire or invest in businesses, products and technologies. Additional capital may not be available at such times or in amounts needed by us. Even if sufficient capital is available to us, it might be availableonly on unfavorable terms. If we are unable to raise additional capital in the future when required and in sufficient amounts or on terms acceptable to us, wemay have to delay, scale back or discontinue one or more product development programs, curtail our commercialization activities, significantly reduceexpenses, sell assets (potentially at a discount to their fair value or carrying value), enter into relationships with third parties to develop or commercializeproducts or technologies that we otherwise would have sought to develop or commercialize independently, cease operations altogether, pursue anacquisition of our company at a price that may result in up to a total loss on investment to our stockholders, file for bankruptcy, seek other protection fromcreditors, or76liquidate all of our assets. In addition, if we default under our term loan agreement, our lenders could foreclose on our assets, including substantially all of ourcash which is held in accounts with our lenders.Contractual ObligationsThe following table summarizes our contractual obligation as of December 31, 2016: Payments due by Period Total Less Than1 Year 1 - 3Years 3 - 5Years More Than5 Years Debt obligations (1) $21,942,411 $7,933,524 $7,310,144 $1,200,000 $5,498,743 Operating lease obligations (2) 2,153,439 524,861 1,585,439 43,139 — Capital lease obligations (3) 164,125 116,850 47,275 — — Total contractual obligations $24,259,975 $8,575,235 $8,942,858 $1,243,139 $5,498,743 (1)Our debt obligations include amounts due to NuvoGen under an asset purchase agreement and, beginning in 2018, includes 2.5% interest on the then-remaining obligation. Through 2017, we owe a specified fixed fee under the NuvoGen agreement. Beginning in 2018, we are obligated to pay thegreater of $400,000 or 6% of sales plus amounts, if any, deferred in the 2017 period by which 6% of revenue exceeds the applicable fixed fee plus 5%interest on any such deferred amounts until the obligation is paid in full. Our debt obligations further include our contractual obligations pursuant toour outstanding $16.0 million term loan under our loan and security agreement with Oxford Finance LLC and Silicon Valley Bank entered into in2014 and amended in 2015 and 2016. The table above includes contractual interest payments and a final premium fee relating to this loan. Refer toNote 8 of our audited financial statements in Item 8 for payments due under the term loan.(2)Our operating lease obligations consist of the leases for our laboratory and office facilities in Tucson, AZ expiring in 2021, as well as office copierleases.(3)Our capital lease obligations consist of an equipment financing arrangement with a vendor and several computer equipment leases which were enteredinto on various dates between December 2012 and December 2016. Off-Balance Sheet ArrangementsWe have not entered into any off-balance sheet arrangements.Recent Accounting PronouncementsFor a summary of recent accounting pronouncements applicable to our financial statements see “Note 2. Basis of Presentation and Summary ofSignificant Accounting Policies” in Part II, Item 8, Notes to Financial Statements, which is incorporated herein by reference.Critical Accounting Policies and Significant Judgments and EstimatesOur management’s discussion and analysis of our financial condition and results of operation is based on our financial statements, which have beenprepared in accordance with U.S. GAAP. The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates andassumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statementsand the reported amounts of revenue and expenses during the reporting period. Items subject to estimates based on judgments include, but are not limited to:revenue recognition, stock-based compensation expense, fair value measurements, the resolution of uncertain tax positions, income tax valuation allowances,recovery of long-lived assets and provisions for doubtful accounts, inventory obsolescence and inventory valuation. Actual results could differ from theseestimates and such differences could affect the results of operations in future periods.Revenue RecognitionProduct revenueWe recognize revenue from the sale of instruments, consumables, sample processing, custom assay development and collaboration service when thefollowing four basic criteria are met: (1) a contract has been entered into with a customer or persuasive evidence of an arrangement exists, (2) delivery hasoccurred or services rendered, (3) the fee is fixed or determinable, and (4) collectability is reasonably assured.77Sale of instruments and consumablesInstrument product revenue is generally recognized upon installation and calibration of the instrument by our field service engineers, unless thecustomer has specified any other acceptance criteria. The sale of instruments and related installation and calibration are considered to be one unit ofaccounting, as instruments are required to be professionally installed and calibrated before use. Installation generally occurs within a month of shipment.Consumables are considered to be separate units of accounting as they are sold separately. Consumables revenue is recognized upon transfer ofownership. Our standard terms and conditions provide that no right of return exists for instruments or consumables unless replacement is necessary due todelivery of defective or damaged products.When a contract involves multiple elements, the items included in the arrangement, referred to as deliverables, are evaluated to determine whetherthey represent separate units of accounting in accordance with ASC 605-25, Revenue Recognition – Multiple-Element Arrangements, or ASC 605-25. Weperform this evaluation at the inception of an arrangement and as each item is delivered in the arrangement. Generally, we account for a deliverable (or agroup of deliverables) separately if the delivered item has stand-alone value to the customer and delivery or performance of the undelivered item or service isprobable and substantially in our control. When multiple elements can be separated into separate units of accounting, arrangement consideration is allocatedat the inception of the arrangement, based on each deliverables’ relative selling price. All revenue from contracts determined not to have separate units ofaccounting is recognized based on consideration of the most substantive delivery factor of all the elements in the contract.We provide instruments to customers under reagent rental agreements. Under these agreements, we install instruments in the customer’s facilitywithout a fee and the customer agrees to purchase consumable products at a stated price over the term of the agreement. While some of these agreements didnot historically contain a minimum purchase requirement, we have included a minimum purchase requirement in all reagent rental agreements entered into in2015, and will continue to do so on future agreements. Terms range from several months to multiple years and may automatically renew in several month ormultiple year increments unless either party notifies the other in advance that the agreement will not renew. This represents a multiple element arrangementand because all consideration under the reagent rental agreement is contingent on the sale of consumables, no consideration is allocated to the instrumentand no revenue is recognized upon installation of the instrument. The cost of the instrument under the agreement is expected to be recovered in the feescharged for consumables, to the extent sold, over the term of the agreement. We retain title to the instrument in reagent rental agreements and such title is transferred to the customer at no additional charge at the conclusion ofthe initial arrangement. Because the pattern of revenue from the arrangement cannot be reasonably estimated, the cost of the instrument is amortized on astraight-line basis over the term of the arrangement, unless there is no minimum consumable product purchase in which case the instrument would beexpensed as cost of revenue. Cost to maintain the equipment while title remains with us is charged to cost of sales as incurred.Service revenueWe enter into custom assay development agreements and collaborative agreements that may generate up-front fees and subsequent payments whichmight be earned upon completion of development-related services. We are able to estimate the total cost of services under these arrangements and recognizerevenue using a proportional performance revenue recognition model, under which revenue is recognized as performance occurs based on the delivery of therelative outputs under the respective agreement. Costs incurred to date compared to total expected costs is used to determine proportional performance, asthis is considered to be representative of the delivery of outputs under the arrangements. Revenue recognized at any point in time is limited to cash that wehave received and amounts contractually due. Changes in estimates of total expected costs are accounted for prospectively as a change in estimate. Fromperiod to period, collaboration and custom assay development revenue can fluctuate substantially based on the achievement of development-relatedmilestones.Sample Processing ServicesOur VERI/O laboratory also provides sample processing services for our customers, whereby the customer provides samples to be processed using ourHTG EdgeSeq technology. Customers are charged a per sample fee for sample processing services which is recognized as revenue upon delivery of a data fileto the customer showing the results of testing, and completing delivery of the agreed upon service. Multiple-Element ArrangementsWe account for contracts which combine one or more services, or services with sales of products or consumables as multiple element arrangementsunder ASC 605-25, as described under sale of instruments and consumables above. Anticipated losses, if any, on contracts are charged to earnings as soon asthey are identified. Anticipated losses cover all costs allocable to contracts. Revenue78arising from claims or change orders is recorded either as income or as an offset against a potential loss only when the amount of the claim can be estimatedand its realization is probable.Fair Value MeasurementsWe establish the fair value of all of our financial assets and liabilities, which are recognized and disclosed at fair value in the financial statements,using the price that would be received to sell an asset or paid to transfer a financial liability in an orderly transaction between market participants at themeasurement date. A fair value hierarchy is used to measure fair value. The three levels of the fair value hierarchy are as follows: Level 1 – Quoted prices in active markets for identical assets and liabilities.Level 2 – Pricing inputs are based on quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments inmarkets that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets.Level 3 – Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable andinclude situations where there is little, if any, market activity for the investment.Our portfolio of securities comprises U.S. Treasuries, U.S. government sponsored agency obligations and high credit quality corporate debt securitiesclassified as available-for-sale securities.As discussed in Note 4, Fair Value, in Part II, Item 8 of this Form 10-K, a majority of our security holdings have been classified as Level 2. Thesesecurities have been initially valued at the transaction price and subsequently valued utilizing a third-party service provider who assesses the fair value usinginputs other than quoted prices that are observable either directly or indirectly, such as yield curve, volatility factors, credit spreads, default rates, lossseverity, current market and contractual prices for the underlying instrument or debt, broker and dealer quotes, as well as other relevant economic measures.We perform certain procedures to corroborate the fair value of these holdings, and, in the process, we apply judgment and estimates that if changed, couldsignificantly affect our statement of financial position.Inventory ValuationInventory consists of raw materials and finished goods which are stated at the lower of cost (first-in, first-out) or market. We reserve or write downinventory for estimated obsolescence, inventory in excess of reasonably expected near term sales or unmarketable inventory, in an amount equal to thedifference between the cost of inventory and the estimated market value, based upon assumption about future demand and market conditions. If actual marketconditions are less favorable than those projected, additional inventory adjustments may be required. Inventory impairment charges establish a new costbasis for inventory and charges are not reversed subsequently to income, even if circumstances later suggest that increased carrying amounts are recoverable. Stock-Based CompensationWe recognize compensation costs related to stock-based payments to employees, including grants of stock options and restricted stock units, or RSUs,and our employee stock purchase plan, based on the estimated fair value of the awards on the date of grant, net of estimated forfeitures. The fair value of RSUsis based on the quoted market price of our common stock on the date of grant. The fair value of ESPP rights and stock options granted pursuant to our equityincentive plans is estimated on the date of grant using the Black-Scholes option pricing model. The determination of the fair value using the Black-Scholesoption pricing model is affected by the fair value of our common stock and several assumptions, including volatility, expected term, risk-free interest rate anddividend yield. Generally, these assumptions are based on historical information and judgment is required to determine if historical trends may be indicatorsof future outcomes. These estimates involve inherent uncertainties. Changes to the assumptions that we have used in the Black-Sholes option pricing modeland the forfeiture rate could significantly impact the compensation expense that has been recognized in our statements of operations. If we had made differentassumptions, our stock-based compensation expense, net loss and net loss per share of common stock could have been significantly different.Income TaxesWe account for income taxes under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequencesattributable to the differences between the financial statement carrying amounts and tax base of assets and liabilities using enacted tax rates and laws that willbe in effect when the differences are expected to reverse. A valuation allowance is established against net deferred tax assets for the uncertainty it presents ofour ability to use the net deferred tax assets, in this case, primarily carryforwards of net operating tax losses and research and development tax credits. Inassessing the realizability of net deferred tax assets we have assessed the likelihood that net deferred tax assets will be recovered from future taxable income,and to79the extent that recovery is not “more likely than not” or there is insufficient operating history, a valuation allowance is established. We record the valuationallowance in the period we determine that it is not more likely than not that net deferred tax assets will be realized. For the years ended December 31, 2016and 2015, we have provided a full valuation allowance for all net deferred tax assets due to their current realization being considered remote in the near term.Uncertain tax positions taken or expected to be taken in a tax return are accounted for using the more likely than not threshold for financial statementrecognition and measurement. Emerging Growth Company StatusWe are an emerging growth company as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. Under the JOBS Act, emerginggrowth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as thosestandards apply to private companies. We have irrevocably elected not to avail ourselves of this exemption from new or revised accounting standards and,therefore, will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies. Item 7A. Quantitative and Qualitative Disclosures About Market Risk.We are exposed to market risks in the ordinary course of our business. These risks primarily relate to interest rates. We had cash and cash equivalentsof $11.8 million at December 31, 2016, which consist of bank deposits and money market funds. Such interest-bearing instruments carry a degree of risk;however, we have not been exposed to, nor do we anticipate being exposed to, material risks due to changes in interest rates. Our debt is at fixed interest rates.A hypothetical 10% change in interest rates during any of the periods presented would not have had a material impact on our financial statements. Ourinvestments in available-for-sale securities are at some risk for losses from possible volatility in the market. However, our investments are in a low riskportfolio comprising U.S. Treasuries, U.S. government sponsored agency obligation and high credit quality corporate debt securities which have an averagecredit rating of AA. We do not anticipate exposure to significant market risk based upon our conservative investment policy.As we continue to expand internationally our results of operations and cash flows will become increasingly subject to fluctuations due to changes inforeign currency exchange rates. Historically, a majority of our revenue has been denominated in U.S. dollars, although we sell our products and servicesdirectly in certain markets outside of the United States denominated in local currency, principally the Euro. Our expenses are generally denominated in thecurrencies in which our operations are located, which is primarily in the United States. The effect of a 10% adverse change in exchange rates on foreigndenominated receivables and payables would not have had a material impact on our results of operations during the periods presented. As our operations incountries outside of the United States grow, our results of operations and cash flows will be subject to potentially greater fluctuations due to changes inforeign currency exchange rates, which could increasingly affect our operating results. To date, we have not entered into any foreign currency hedgingcontracts, although we may do so in the future. Item 8. Financial Statements and Supplementary Data. 80INDEX TO FINANCIAL STATEMENTS Report of Independent Registered Public Accounting FirmF-2 Balance Sheets as of December 31, 2016 and 2015F-3 Statements of Operations for the Years ended December 31, 2016 and 2015F-4 Statements of Comprehensive Loss for the Years ended December 31, 2016 and 2015F-5 Statements of Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit) for the Years ended December 31, 2016 and 2015F-6 Statements of Cash Flows for the Years ended December 31, 2016 and 2015F-8 Notes to Financial StatementsF-9 F-1Report of Independent Registered Public Accounting FirmTo the Board of Directors and Stockholders of HTG Molecular Diagnostics, Inc.Tucson, ArizonaWe have audited the accompanying balance sheets of HTG Molecular Diagnostics, Inc. (the “Company”) as of December 31, 2016 and 2015 and therelated statements of operations, comprehensive loss, redeemable convertible preferred stock and stockholders’ equity (deficit), and cash flows for the yearsthen ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financialstatements based on our audits.We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standardsrequire that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. TheCompany is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included considerationof internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose ofexpressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An auditalso includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principlesused and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide areasonable basis for our opinion.In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as ofDecember 31, 2016 and 2015, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generallyaccepted in the United States of America. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As described in Note 2 to thefinancial statements, the Company has had recurring operating losses and negative cash flows from operations and has a net capital deficiency that raisesubstantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 2. The financialstatements do not include any adjustments that might result from the outcome of this uncertainty. /s/ BDO USA, LLPPhoenix, ArizonaMarch 23, 2017 F-2HTG Molecular Diagnostics, Inc.Balance Sheets December 31, 2016 2015 Assets Current assets: Cash and cash equivalents $7,507,659 $3,293,983 Short-term investments available-for-sale, at fair value 4,304,901 28,201,507 Accounts receivable 1,377,441 716,246 Inventory, net of allowance of $270,307 at December 31, 2016 and $284,319 at December 31, 2015 1,511,053 2,201,301 Prepaid expenses and other 433,328 445,217 Total current assets 15,134,382 34,858,254 Long-term investments available-for-sale, at fair value — 2,603,901 Deferred offering costs 49,630 — Property and equipment, net 3,270,197 1,932,213 Total assets $18,454,209 $39,394,368 Liabilities and stockholders’ equity (deficit) Current liabilities: Accounts payable $761,663 $724,805 Accrued liabilities 1,670,286 1,915,268 Deferred revenue, current portion 335,659 47,476 NuvoGen obligation 604,751 543,750 Term loan 6,389,782 3,059,068 Other current liabilities 258,850 29,243 Total current liabilities 10,020,991 6,319,610 Term loan payable - non-current, net of discount and debt issuance costs 5,389,137 7,737,586 NuvoGen obligation - non-current, net of discount 8,017,356 8,415,122 Other 619,587 28,652 Total liabilities 24,047,071 22,500,970 Commitments and Contingencies Stockholders’ equity (deficit): Common stock, $0.001 par value; 200,000,000 shares authorized at December 31, 2016, and December 31, 2015, 7,939,967 and 7,938,571 shares issued and outstanding, respectively, at December 31, 2016, 6,845,638 and 6,844,242 shares issued and outstanding, respectively, at December 31, 2015 7,938 6,844 Additional paid-in-capital 110,081,334 106,569,405 Treasury stock – 1,396 shares, at cost (75,000) (75,000)Accumulated other comprehensive loss (1,090) (41,357)Accumulated deficit (115,606,044) (89,566,494)Total stockholders’ equity (deficit) (5,592,862) 16,893,398 Total liabilities and stockholders' equity (deficit) $18,454,209 $39,394,368 The accompanying notes are an integral part of these financial statements. F-3HTG Molecular Diagnostics, Inc.Statements of Operations Years Ended December 31, 2016 2015 Revenue: Product $2,759,942 $3,532,028 Service 2,372,788 183,758 Other — 325,789 Total revenue 5,132,730 4,041,575 Cost of revenue 4,135,884 3,335,511 Gross margin 996,846 706,064 Operating expenses: Selling, general and administrative 17,427,777 14,994,410 Research and development 7,900,311 4,601,718 Total operating expenses 25,328,088 19,596,128 Operating loss (24,331,242) (18,890,064) Other income (expense): Loss from change in stock warrant valuation — (239,683)Interest expense (1,867,466) (1,719,475)Interest income 112,413 85,859 Loss on settlement of convertible debt — (705,217)Other 56,863 80,978 Total other income (expense) (1,698,190) (2,497,538)Net loss before income taxes (26,029,432) (21,387,602)Income taxes 10,118 10,189 Net loss (26,039,550) (21,397,791)Accretion of stock issuance costs — (35,046)Accretion of Series E warrant discount — (127,616)Accretion of Series D and E redeemable convertible preferred stock dividends — (1,165,932)Net loss attributable to common stockholders $(26,039,550) $(22,726,385)Net loss per share attributable to common stockholders, basic and diluted $(3.66) $(5.03)Shares used in computing net loss per share attributable to common stockholders, basic and diluted 7,113,075 4,518,499 The accompanying notes are an integral part of these financial statements. F-4HTG Molecular Diagnostics, Inc.Statements of Comprehensive Loss Years Ended December 31, 2016 2015 Net loss $(26,039,550) $(21,397,791)Other comprehensive income (loss), net of tax effect: Unrealized gain (loss) on short and long-term investments 40,267 (41,357)Comprehensive loss (25,999,283) (21,439,148)Less: Accretion of stock issuance costs — (35,046)Less: Accretion of Series E warrant discount — (127,616)Less: Accretion of Series D and E redeemable convertible preferred stock dividends — (1,165,932)Comprehensive loss attributable to common stockholders $(25,999,283) $(22,767,742) The accompanying notes are an integral part of these financial statements. F-5HTG Molecular Diagnostics, Inc.Statements of Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit) Redeemable Convertible Preferred Stock Series A Series B Series C-1 Series C-2 Series D Series E Shares Amount Shares Amount Shares Amount Shares Amount Shares Amount Shares Amount Balance atJanuary 1, 2015 1,292,084 $1,402,687 6,789,712 $2,099,310 13,242,612 $4,567,525 9,948,331 $2,223,506 139,529,173 $37,174,666 45,938,041 $8,454,899 Exercise ofSeries D andSeries Ewarrants — — — — — — — — 723,505 93,550 51,681 11,312 Exercise of stockoptions — — — — — — — — — — — — Stock issuedunder stockpurchase plan — — — — — — — — — — — — Stock-basedcompensationexpense — — — — — — — — — — — — Accretion ofredeemableconvertiblepreferred stockissuance costs — 320 — 839 — 1,538 — 2,113 — 18,109 — 12,127 Accretion ofSeries E warrantdiscount — — — — — — — — — — — 127,616 Accretion ofSeries D and Eredeemableconvertiblepreferred stockdividends — — — — — — — — — 876,955 — 288,977 Conversion ofoutstandingprincipal andaccrued intereston convertiblenotes byissuance ofcommon stock — — — — — — — — — — — — Conversion ofwarrants fromwarrants forpreferred stockto warrants forcommon stock — — — — — — — — — — — — Conversion ofpreferred stockinto commonstock at initialpublic offering (1,292,084) (1,403,007) (6,789,712) (2,100,149) (13,242,612) (4,569,063) (9,948,331) (2,225,619) (140,252,678) (38,163,280) (45,989,722) (8,894,931)Issuance ofcommon stockfrom initialpublic offeringnet of issuancecosts of $5.9million — — — — — — — — — — — — Net loss — — — — — — — — — — — — Othercomprehensiveloss — — — — — — — — — — — — Balance atDecember 31,2015 — $— — $— — $— — $— — $— — - $— Stock issued forpayment of 2015annual bonus Exercise of stockoptions — — — — — — — — — — — — Stock-basedcompensationexpense — — — — — — — — — — — — Vesting ofrestricted stockunits — — — — — — — — — — — — Employee stockpurchase planpurchases — — — — — — — — — — — — Stock issued forprivateinvestment — — — — — — — — — — — — Growth TermLoan B warrantdiscount — — — — — — — — — — — — Net loss — — — — — — — — — — — — Othercomprehensiveincome — — — — — — — — — — — — Balance atDecember 31,2016 — $— — $— — $— — $— — $— — $— The accompanying notes are an integral part of these financial statements.F-6HTG Molecular Diagnostics, Inc.Statements of Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit) (Continued) Common Stock AdditionalPaid-In Treasury AccumulatedOtherComprehensive Accumulated TotalStockholders' Shares Amount Capital Stock Loss Deficit Equity(Deficit) Balance at January 1, 2015 332,607 $333 (1,426,556) $(75,000) $— $(68,168,703) $(69,669,926)Exercise of Series D and Series E warrants — — — — — — — Exercise of stock options 13,960 14 34,867 — — — 34,881 Stock issued under stock purchase plan 4,184 4 19,996 — — — 20,000 Stock-based compensation expense — — 405,426 — — — 405,426 Accretion of redeemable convertible preferred stockissuance costs — — (35,046) — — — (35,046)Accretion of Series E warrant discount — — (127,616) — — — (127,616)Accretion of Series D and E redeemable convertiblepreferred stock dividends — — (1,165,932) — — — (1,165,932)Conversion of outstanding principal and accruedinterest onconvertible notes by issuance of common stock 324,591 324 4,544,060 — — — 4,544,384 Conversion of warrants from warrants for preferredstock towarrants for common stock — — 1,616,140 — — — 1,616,140 Conversion of preferred stock into common stock atinitial public offering 2,508,824 2,509 57,353,540 — — — 57,356,049 Issuance of common stock from initial publicoffering net ofissuance costs of $5.9 million 3,660,076 3,660 45,350,526 — — — 45,354,186 Net loss — — — — — (21,397,791) (21,397,791)Other comprehensive loss — — — — (41,357) — (41,357)Balance at December 31, 2015 6,844,242 $6,844 $106,569,405 $(75,000) $(41,357) $(89,566,494) $16,893,398 Stock issued for payment of 2015 annual bonus 133,179 133 364,777 — — — 364,910 Exercise of stock options 11,093 11 23,840 — — — 23,851 Stock-based compensation expense — — 903,547 — — — 903,547 Vesting of restricted stock units 36,762 37 — — — — 37 Employee stock purchase plan 79,962 80 273,138 — — — 273,218 Stock issued for private investment 833,333 833 1,824,167 — — — 1,825,000 Growth Term Loan B warrant discount — — 122,460 — — — 122,460 Net loss — — — — — (26,039,550) (26,039,550)Other comprehensive income — — — — 40,267 — 40,267 Balance at December 31, 2016 7,938,571 $7,938 $110,081,334 $(75,000) $(1,090) $(115,606,044) $(5,592,862) The accompanying notes are an integral part of these financial statements. F-7HTG Molecular Diagnostics, Inc.Statements of Cash Flows Years Ended December 31, 2016 2015 Operating activities Net loss $(26,039,550) $(21,397,791)Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 1,473,778 662,562 Accretion of discount on NuvoGen obligation 206,985 281,013 Bad debt expense, net of recoveries — 44,854 Provision for excess inventory 723,466 230,754 Amortization of Growth Term Loan discount and issuance costs 551,121 352,415 Loss on settlement of convertible notes — 705,217 Amortization of convertible note discount and issuance costs — 112,134 Stock-based compensation expense 903,584 405,426 Employee stock purchase plan expense 98,544 — Change in redeemable convertible preferred stock warrant liability — 239,683 Accretion of incentive from landlord (130,167) — Amortization of premiums and discounts and accrued interest on available-for-sale securities investments 172,045 — Loss on disposal of assets 98,685 12,125 Changes in operating assets and liabilities: Accounts receivable (661,195) 40,025 Inventory (33,218) (746,241)Prepaid expenses and other 11,889 (334,536)Accounts payable 10,073 (312,275)Accrued liabilities 119,928 455,620 Deferred revenue 259,824 6,228 Other long term liabilities — (486)Net cash used in operating activities (22,234,208) (19,243,273)Investing activities Purchase of property and equipment (1,946,515) (1,338,124)Sales, redemptions and maturities of available-for-sale securities 29,750,000 7,500,000 Purchase of available-for-sale securities (3,381,271) (38,346,765)Net cash provided by (used in) investing activities 24,422,214 (32,184,889)Financing activities Proceeds from initial public offering — 47,654,190 Deferred offering costs (49,630) (1,002,930)Proceeds from private investors 2,000,000 — Proceeds from Growth Term Loan 5,000,000 — Payments on Growth Term Loan (4,446,396) — Proceeds from convertible notes — 4,500,000 Deferred financing costs — (75,523)Payments on capital leases (133,079) (29,242)Proceeds from exercise of stock options 23,851 34,881 Proceeds from exercise of Series E warrants — 8,948 Proceeds from issuance of convertible note warrants — 1,354 Proceeds from stock purchased under stock purchase plans — 20,000 Proceeds from stock purchased under the employee stock purchase plan 174,674 — Payments on NuvoGen obligation (543,750) — Settlement of fractional common shares — (2,925)Net cash provided by financing activities 2,025,670 51,108,753 Increase (decrease) in cash and cash equivalents 4,213,676 (319,409)Cash and cash equivalents at beginning of period 3,293,983 3,613,392 Cash and cash equivalents at end of period $7,507,659 $3,293,983 Noncash investing and financing activities Accretion of preferred stock issuance costs $— $35,046 Net exercise of Series D and Series E warrants — (95,914)Accretion of Series E warrant discount — 127,616 Accretion of Series D and Series E redeemable convertible preferred stock dividends — 1,165,932 Deferred offering costs reclassified to distributions in excess of capital — 2,297,079 Allocation of Series E warrant convertible notes debt discount — 741,828 Conversion of convertible notes and related accrued interest to common stock — 4,544,384 Conversion of convertible preferred stock to common stock — (57,356,049)Reclassification of convertible preferred stock liability warrants to equity warrants — (1,616,140)Fixed asset purchases payable and accrued at period end 26,785 122,176 Stock issued for settlement of accrued bonus (364,910) — Purchase of property and equipment under capital lease 227,147 — Incentive from landlord 710,000 — Supplemental cash flow information Cash paid for interest $1,109,359 $935,004 The accompanying notes are an integral part of these financial statements. F-8HTG Molecular Diagnostics, Inc.Notes to Financial Statements Note 1. Description of BusinessHTG Molecular Diagnostics, Inc. (the “Company”) is a commercial stage company that develops and markets products and services based on proprietarytechnology that facilitates the routine use of targeted molecular profiling. The Company derives revenue from services provided by its VERI/O laboratoryand sales of the Company’s automation systems and integrated next-generation sequencing-based HTG EdgeSeq assays.The Company operates in one segment and its customers are primarily located in the United States. For the year ended December 31, 2016, approximately16% of the Company’s revenue was generated from sales originated by customers located outside of the United States, compared with 13% for the year endedDecember 31, 2015.2015 Reverse Stock SplitOn April 27, 2015, the Company effected a one-for-107.39 reverse stock split of its outstanding common stock. All applicable common share and percommon share information has been retroactively adjusted to reflect the effect of this reverse stock split. The reverse stock split did not change the number ofshares of convertible preferred stock outstanding, but did affect the conversion ratios associated with the convertible preferred stock.Initial Public OfferingOn May 11, 2015, the Company successfully completed its initial public offering (“IPO”), in which the Company sold 3,570,000 shares of common stock at$14.00 per share for total gross proceeds of approximately $50 million. An additional 90,076 shares of common stock were subsequently sold pursuant to thepartial exercise by the underwriters of their over-allotment option resulting in additional gross proceeds of approximately $1.3 million. After underwriters’fees and commissions and other expenses of the offering, the Company’s aggregate net proceeds were approximately $45.4 million. All outstanding shares ofthe Company’s redeemable convertible preferred stock converted into shares of common stock in connection with the IPO. Following the IPO, there were noshares of preferred stock outstanding. Note 2. Basis of Presentation and Summary of Significant Accounting PoliciesAccounting PrinciplesThe financial statements and accompanying notes were prepared in accordance with accounting principles generally accepted in the United States of America(“U.S. GAAP”).ReclassificationsCertain prior year amounts have been reclassified for consistency with the current period presentation. These reclassifications had no effect on the reportedresults of operations. Going ConcernThe Company implemented the criteria of Accounting Standards Update (“ASU”) No. 2014-15, Disclosure of Uncertainties about an Entity’s Ability toContinue as a Going Concern, in the first quarter of 2016. In accordance with this guidance, management has assessed the Company’s ability to continue as agoing concern within one year of the filing date of this Annual Report on Form 10‑K with the Securities and Exchange Commission (“SEC”). Theaccompanying financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization ofassets and satisfaction of liabilities in the normal course of business. However, the Company has had recurring operating losses and negative cash flows fromoperations since its inception and has an accumulated deficit of approximately $115.6 million. As of December 31, 2016, the Company had available cash,cash equivalents and investments in short term available-for-sale securities of approximately $11.8 million, and had current liabilities of approximately$10.0 million plus an additional $14.0 million in long-term liabilities primarily attributable to its growth term loan and NuvoGen obligation. Managementbelieves that the Company’s existing resources will be sufficient to fund the Company’s planned operations and expenditures until mid-way through thesecond quarter of 2017. However, the Company cannot provide assurances that its plans will not change or that changed circumstances will not result in thedepletion of its capital resources more rapidly than it currently anticipates. These circumstances raise substantial doubt about the Company’s ability tocontinue as a going concern. The accompanying financial statements do not include any adjustments that may result from the outcome of theseuncertainties. F-9The Company will need to raise additional capital to fund its operations until its revenue reaches a level sufficient to provide for self-sustaining cash flows.There can be no assurance that additional capital will be available on acceptable terms, or at all, or that the Company’s revenue will reach a level sufficient toprovide for self-sustaining cash flows. If sufficient additional capital is not available as and when needed, the Company may have to delay, scale back ordiscontinue one or more product development programs, curtail its commercialization activities, significantly reduce expenses, sell assets (potentially at adiscount to their fair value or carrying value), enter into relationships with third parties to develop or commercialize independently, cease operationsaltogether, pursue an acquisition of the Company at a price that may result in up to a total loss on investment for its stockholders, file for bankruptcy or seekother protection from creditors, or liquidate all assets. In addition, if the Company defaults under its term loan agreement, its lenders could foreclose on itsassets, including substantially all of its cash which is held in accounts with its lenders.Change in Accounting PrincipleIn April 2015, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2015-03, Interest – Imputation of Interest: Simplifying the Presentationof Debt Issuance Costs (“ASU 2015-03”). The standard requires entities to present debt issuance costs on the balance sheet as a direct deduction from therelated debt liability rather than as an asset, and to report amortization as interest expense. The requirements were to be applied on a retrospective basis. TheCompany adopted ASU 2015-03 effective January 1, 2016. As such, prepaid expenses and other and term loan payable – non-current, net of discount havebeen restated as of December 31, 2015, to reflect the retrospective reclassification of $52,377 of Growth Term Loan deferred financing fees from prepaidexpenses and other to term loan payable – non-current, net of discount and debt issuance costs.Use of EstimatesThe preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reportedamounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements, and the reported amounts ofrevenues and expenses during the reporting period. The Company’s significant estimates include revenue recognition, stock-based compensation expense,the value of the warrant liability, the resolution of uncertain tax positions, income tax valuation allowances, recovery of long-lived assets, provisions fordoubtful accounts, inventory obsolescence and inventory valuation. Actual results could materially differ from those estimates.Cash and Cash EquivalentsThe Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash and cash equivalents. Cash and cashequivalents consist of cash on deposit with financial institutions, money market instruments and high credit quality corporate debt securities purchased witha term of three months or less.Accounts ReceivableAccounts receivable represent valid claims against debtors. Management reviews accounts receivable regularly to determine, using the specific identificationmethod, if any receivable amounts will potentially be uncollectible and to estimate the amount of allowance for doubtful accounts necessary to reduceaccounts receivable to its estimated net realizable value. As of both December 31, 2016 and 2015, there were no receivable amounts requiring an allowancefor doubtful accounts. The Company had a recovery of $35,000 against previously recorded bad debt expense and no write offs of uncollectible amounts forthe year ended December 31, 2016. Bad debt expense, net of recoveries, was $44,854 for the year ended December 31, 2015.InvestmentsThe Company classifies its debt securities as available-for-sale, which are reported at estimated fair value with unrealized gains and losses included inaccumulated other comprehensive loss, net of tax. Realized gains, realized losses and declines in value of securities judged to be other-than-temporary, areincluded in other income (expense) within the statements of operations. The cost of investments for purposes of computing realized and unrealized gains andlosses is based on the specific identification method. Interest earned on all securities is included in other income (expense) within the statements ofoperations. Investments in securities with maturities of less than one year, or where management’s intent is to use the investments to fund current operations,or to make them available for current operations, are classified as short-term investments.If the estimated fair value of a security is below its carrying value, the Company evaluates whether it is more likely than not that it will sell the security beforeits anticipated recovery in market value and whether evidence indicating that the cost of the investment is recoverable within a reasonable period of timeoutweighs evidence to the contrary. The Company also evaluates whether or not it intends to sell the investment. If the impairment is considered to be other-than-temporary, the security is written down to its estimated fair value. In addition, the Company considers whether credit losses exist for any securities. Acredit loss exists if the present value ofF-10cash flows expected to be collected is less than the amortized cost basis of the security. Other-than-temporary declines in estimated fair value and creditlosses are charged against other income (expense).Fair Value of Financial InstrumentsThe carrying value of financial instruments classified as current assets and current liabilities approximate fair value due to their liquidity and short-termnature. Investments that are classified as available-for-sale are recorded at fair value, which was determined using quoted market prices, broker or dealerquotations, or alternative pricing sources with reasonable levels of price transparency. The carrying amount of the Company’s asset-secured growth capitalterm loan (the “Growth Term Loan”) was estimated using Level 3 inputs and approximate fair value since the interest rate approximates the market rate fordebt securities with similar terms and risk characteristics.Fair value measurements are based on the premise that fair value is an exit price representing the amount that would be received to sell an asset or paid totransfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined basedon assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, the following three-tier fairvalue hierarchy has been used in determining the inputs used in measuring fair value: Level 1 – Quoted prices in active markets for identical assets or liabilities on the reporting date. Level 2 – Pricing inputs are based on quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments inmarkets that are not active and model-based valuation techniques for which all significant assumptions are observable in the market orcan be corroborated by observable market data for substantially the full term of the assets or liabilities. Level 3 – Pricing inputs are generally unobservable and include situations where there is little, if any, market activity for the investment. Theinputs into the determination of fair value require management’s judgment or estimation of assumptions that market participants woulduse in pricing the assets or liabilities. The fair values are therefore determined using factors that involve considerable judgment andinterpretations, including but not limited to private and public comparables, third-party appraisals, discounted cash flow models, andfund manager estimates. Inventory, netInventory, consisting of raw materials, work in process and finished goods, is stated at the lower of cost (first-in, first-out) or market. Cost is determined usinga standard cost system, whereby the standard costs are updated periodically to reflect current costs and market represents the lower of replacement cost orestimated net realizable value. The Company reserves or writes down its inventory for estimated obsolescence or inventory in excess of reasonably expectednear term sales or unmarketable inventory, in an amount equal to the difference between the cost of inventory and the estimated market value, based uponassumptions about future demand and market conditions. If actual market conditions are less favorable than those projected by the Company, additionalinventory write-downs may be required. Inventory impairment charges establish a new cost basis for inventory and charges are not reversed subsequently toincome, even if circumstances later suggest that increased carrying amounts are recoverable.For the year ended December 31, 2016, the Company wrote off HTG Edge Reader inventory previously reserved of $210,183 and additional HTG EdgeReader-related inventory totaling $360,194. Additional reserves were recorded for excess HTG Edge inventory of $133,244 and the reserve for shrinkage andexcess inventory was increased by $62,927. An additional $167,100 of non-reader related inventory was written off directly to cost of revenue for the yearended December 31, 2016.For the year ended December 31, 2015, the Company recorded an increase in the inventory reserve within cost of revenue of $230,050, to adjust for estimatedshrinkage and excess inventory.Equipment that is under evaluation for purchase remains in inventory as the Company maintains title to the equipment throughout the evaluation period.The period of time customers use to evaluate the Company’s equipment generally ranges from 90 to 180 days, and in certain circumstances the evaluationperiod may need to be extended beyond that period. However, in no case will the evaluation period exceed one year. If the customer has not purchased theequipment or entered into a reagent rental agreement with the Company after evaluating for one year, the equipment is returned to the Company or thecustomer is allowed to continue use of the equipment, in which case the equipment is written off to selling, general and administrative expense in thestatement of operations. HTG EdgeSeq instruments at customer locations under evaluation agreements are included in finished goods inventory. Finishedgoods inventory under evaluation as of December 31, 2016 was $185,557 compared to $632,216 as of December 31, 2015.F-11Property and Equipment, netProperty and equipment are stated at historical cost and depreciated over their useful lives, which range from three to five years, using the straight-linemethod. Field equipment is amortized using the straight-line method over the lesser of the period of the related reagent rental agreement or the estimateduseful life. Leasehold improvements are amortized using the straight-line method over the lesser of the remaining lease term or the estimated useful life.Certain leasehold improvements constructed by the landlord of the Company’s Tucson, AZ facilities as an incentive for the Company to extend its leases areincluded in leasehold improvements on the balance sheets as of December 31, 2016. The total cost of the improvements constructed by the landlord of$710,000 was capitalized when construction was completed in February 2016, and is being amortized over the remaining term of the lease agreement. Theincentive of $710,000 has been recognized as deferred rent within other current liabilities and other liabilities on the balance sheets and is being accretedover the lease term as a reduction of rent expense.Depreciation and leasehold improvement amortization expense was $1,473,778 for the year ended December 31, 2016, and $662,562 for the year endedDecember 31, 2015.Costs incurred in the development and installation of software for internal use are expensed or capitalized, depending on whether they are incurred in thepreliminary project stage (expensed), application development stage (capitalized), or post-implementation stage (expensed). Amounts capitalized followingproject completion are amortized on a straight-line basis over the useful life of the developed asset, which is generally three years. There was $283 and $0amortization expense for capitalized software costs for the years ended December 31, 2016 and 2015, respectively. Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not berecoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset group to the estimated undiscountedfuture cash flows expected to be generated by the asset group. If the carrying amount of an asset group exceeds its estimated future cash flow, an impairmentcharge is recognized in the amount by which the carrying amount of the asset group exceeds the fair value of the asset group. Although the Company hasaccumulated losses since inception, the Company believes the future cash flows will be sufficient to exceed the carrying value of the Company’s long-livedassets. There were no impairments of long-lived assets during the years ended December 31, 2016 or 2015.Stock Issuance CostsCertain costs incurred in connection with the issuance of the Company’s redeemable convertible preferred stock (the “Convertible Preferred Stock”) prior tothe IPO were being deferred and accreted. Stock issuance costs have historically been accreted to distributions in excess of capital using the effective interestmethod. The Company recognized accretion costs of 35,046 for the year ended December 31, 2015. There were no accretion costs for the year endedDecember 31, 2016. Upon automatic conversion of the Convertible Preferred Stock to common stock in connection with the closing of the IPO in May 2015,issuance costs were no longer accreted.Deferred Financing Costs and Debt DiscountsCertain costs incurred in connection with the Growth Term Loans have been deferred and are being amortized. Debt issuance costs and debt discount arebeing presented as a direct deduction from term loan payable – non-current, net of discount and debt issuance costs in the accompanying balance sheets andare being amortized over the term of the Growth Term Loans using the effective interest method. The Company has recorded approximately $24,909 and$52,377 of deferred financing costs in the accompanying balance sheets as of December 31, 2016 and 2015, respectively. Deferred financing costamortization expense for the years ended December 31, 2016 and 2015 was $27,468 and $22,754, respectively. The Company has recorded approximately$238,469 and $352,415 of discounts associated with Growth Term Loan A and Growth Term Loan B in the accompanying balance sheets as of December 31,2016 and 2015, respectively. Amortization of the discounts associated with the Growth Term Loans totaled $249,868 and $170,954 for the years endedDecember 31, 2016 and 2015, and is included in interest expense in the accompanying statements of operations.F-12Prior to the IPO, costs incurred in connection with the issuance of notes under the Company’s two note and warrant purchase agreements dated December 30,2014 (the “Note Agreements”) were capitalized and amortized over the term of the Note Agreements using the straight-line accretion method, whichapproximated the effective interest method in this instance. Amortization of the discount and issuance costs on the Note Agreements was $0 and $112,134 forthe years ended December 31, 2016 and 2015, and is included in interest expense in the accompanying statements of operations. The Company compared thevalue of the common stock issued to settle the debt with the carrying amount of the debt at the IPO closing date of May 2015, net of unamortized discountand recorded a loss on settlement of convertible debt of $705,217, comprising $651,606 to write off unamortized discount and $53,611 to write offunamortized deferred financing costs relating to the convertible notes which were settled with common stock at the IPO, in the accompanying statements ofoperations for the year ended December 31, 2015.Deferred Offering CostsDeferred offering costs represent legal, accounting and other direct costs related to stock offering transactions. Deferred offering costs of $49,630 included asnon-current assets in the accompanying December 31, 2016 balance sheets represent legal costs incurred during the year ended December 31, 2016 by theCompany in contemplation of the issuance of additional shares in a future financing transaction. In accounting for the IPO in May 2015, deferred offeringcosts of approximately $2.3 million are shown, along with underwriters’ fees paid, net against IPO proceeds received. As a result of this transaction, there were$0 deferred offering costs in the accompanying balance sheets as of December 31, 2015.Deferred RevenueDeferred revenue represents cash receipts for products or services to be provided in future periods, including up-front fees received relating to custom assaydevelopment and collaboration agreements. When products are delivered or data is provided to customers for sample processing services rendered, deferredrevenue is recognized as earned. Up-front fees received for customer assay development and collaboration agreements are recognized as services areperformed on a proportional performance basis.Revenue RecognitionThe Company recognizes revenue from the sale of instruments, consumables, sample processing, custom assay development and collaboration services whenthe following four basic criteria are met: (1) a contract has been entered into with a customer or persuasive evidence of an arrangement exists, (2) delivery hasoccurred or services rendered, (3) the fee is fixed or determinable, and (4) collectability is reasonably assured.Sale of instruments and consumables The Company had product revenue consisting of revenue from the sale of instruments and consumables for the years ended December 31, 2016 and 2015 asfollows: Years Ended December 31, 2016 2015 Instruments $522,813 $789,231 Consumables 2,237,129 2,742,797 Total product sales $2,759,942 $3,532,028 Instrument product revenue is generally recognized upon installation and calibration of the instrument by field service engineers, unless the customer hasspecified any other acceptance criteria. The sale of instruments and related installation and calibration are considered to be one unit of accounting, asinstruments are required to be professionally installed and calibrated before use. Installation generally occurs within a month of shipment.Consumables are considered to be separate units of accounting as they are sold separately. Consumables revenue is recognized upon transfer of ownership.The Company’s standard terms and conditions provide that no right of return exists for instruments or consumables, unless replacement is necessary due todelivery of defective or damaged products. Shipping and handling fees charged to the Company’s customers for instruments and consumables shipped areincluded in the statements of operations as part of product revenue. Shipping and handling costs for sold products shipped to the Company’s customers areincluded on the statements of operations as part of cost of revenue.When a contract involves multiple elements, the items included in the arrangement, referred to as deliverables, are evaluated to determine whether theyrepresent separate units of accounting in accordance with ASC 605-25, Revenue Recognition – Multiple-Element Arrangements (“ASC 605-25”). TheCompany performs this evaluation at the inception of an arrangement and as each itemF-13is delivered in the arrangement. Generally, the Company accounts for a deliverable (or a group of deliverables) separately if the delivered item has stand-alone value to the customer and delivery or performance of the undelivered item or service is probable and substantially in the Company’s control. Whenmultiple elements can be separated into separate units of accounting, arrangement consideration is allocated at the inception of the arrangement, based oneach unit’s relative selling price, and recognized based on the method most appropriate for that unit.The Company provides instruments to certain customers under reagent rental agreements. Under these agreements, the Company installs instruments in thecustomer’s facility without a fee and the customer agrees to purchase consumable products at a stated price over the term of the agreement; in some instances,the agreements do not contain a minimum purchase requirement. Terms range from several months to multiple years and may automatically renew in severalmonth or multiple year increments unless either party notifies the other in advance that the agreement will not renew. This represents a multiple elementarrangement and because all consideration under the reagent rental agreement is contingent on the sale of consumables, no consideration has been allocatedto the instrument and no revenue has been recognized upon installation of the instrument. The Company expects to recover the cost of the instrument underthe agreement through the fees charged for consumables, to the extent sold, over the term of the agreement.In reagent rental agreements, the Company retains title to the instrument and title is transferred to the customer at no additional charge at the conclusion ofthe initial arrangement. Because the pattern of revenue from the arrangement cannot be reasonably estimated, the cost of the instrument is amortized on astraight-line basis over the term of the arrangement, unless there is no minimum consumable product purchase in which case the instrument would beexpensed as cost of revenue. Cost to maintain the instrument while title remains with the Company is charged to selling, general and administrative expenseas incurred.The Company offers customers the opportunity to purchase separately-priced extended warranty contracts to provide for service upon conclusion of thestandard one-year warranty period. The revenue from these contracts is recorded as a component of deferred revenue in the accompanying balance sheets atthe inception of the contract and is recognized as revenue over the contract service period.Service RevenueThe Company enters into custom assay development agreements and collaborative agreements that may generate up-front fees and subsequent paymentswhich might be earned upon completion of development-related services. The Company is able to estimate the total cost of services under these arrangementsand recognizes revenue using a proportional performance revenue recognition model, under which revenue is recognized as performance occurs based on thedelivery of the relative outputs under the respective agreement. Costs incurred to date compared to total expected costs are used to determine proportionalperformance, as this is considered to be representative of the delivery of outputs under the arrangements. Revenue recognized at any point in time is limitedto cash received and amounts contractually due. Changes in estimates of total expected costs are accounted for prospectively as a change in estimate. Fromperiod to period, collaboration, companion diagnostic program and custom assay development revenue can fluctuate substantially based on the achievementof development-related services.Sample Processing ServicesThe Company also provides sample processing services and molecular profiling of retrospective cohorts for its customers through its VERI/O laboratory,whereby the customer provides samples to be processed using the HTG EdgeSeq technology. Customers are charged a per sample fee for sample processingservices which is recognized as revenue upon delivery of a data file to the customer showing the results of testing, and completing delivery of the agreedupon service. Multiple-Element ArrangementsContracts which combine one or more services, or services with sales of products or consumables are accounted for as multiple element arrangements underASC 605-25, as described under sale of instruments and consumables above. Anticipated losses, if any, on contracts are charged to earnings as soon as theyare identified. Anticipated losses cover all costs allocable to contracts. Revenue arising from claims or change orders is recorded either as income or as anoffset against a potential loss only when the amount of the claim can be estimated and its realization is probable.Other RevenueOther revenue includes grant revenue. Grant revenue is earned when expenditures relating to the projects under these awards are incurred.F-14Product WarrantyThe Company generally provides a one-year warranty on its HTG Edge and HTG EdgeSeq systems covering the performance of system hardware and softwarein conformance with customer specifications under normal use and protecting against defects in materials and workmanship. The Company may, at its option,replace, repair or exchange products covered under valid warranty claims. A provision for estimated warranty costs is recognized at the time of sale, throughcost of revenue, based upon recent historical experience and other relevant information as it becomes available. The Company continuously assesses theadequacy of its product warranty accrual by reviewing actual claims and adjusts the provision as needed. Due to a lack of historical data and a low rate ofwarranty claims, the Company had not recorded any liability for product warranty prior to 2015.Research and Development ExpensesResearch and development expenses represent both costs incurred internally for research and development activities and costs incurred externally to fundresearch activities. All research and development costs are expensed as incurred.AdvertisingAll costs associated with advertising and promotions are expensed as incurred. Advertising and promotion expense was $49,022 and $11,761 for the yearsended December 31, 2016 and 2015, respectively, and is included as a component of selling, general and administrative expenses on the accompanyingstatements of operations.Stock-Based CompensationThe Company incurs stock-based compensation expense relating to grants of restricted stock units (“RSUs”) and stock options to employees, consultants andnon-employee directors and its employee stock purchase plan (“ESPP”).The Company recognizes expense for stock-based awards to employees and non-employee directors based on the fair value of awards on the date of grant.The fair value of RSUs is based on the quoted market price of the Company’s common stock on the date of grant. The fair value of ESPP rights and stockoptions granted pursuant to the Company’s equity incentive plans is estimated on the date of grant using the Black-Scholes option pricing model. Thedetermination of the fair value utilizing the Black-Scholes option pricing model is affected by the fair value of the Company’s stock price and severalassumptions, including volatility, expected term, risk-free interest rate, and dividend yield. Generally, these assumptions are based on historical informationand judgment is required to determine if historical trends may be indicators of future outcomes.The Company recognizes compensation cost for stock-based awards with service conditions that have a graded vesting schedule on a straight-line basis overthe requisite service period. However, the amount of compensation cost recognized at any time generally equals the portion of grant-date fair value of theaward that is vested at that date, net of estimated forfeitures. Forfeitures are revised, if necessary, in subsequent periods if actual forfeitures differ from thoseestimates and an adjustment to stock-based compensation expense will be recognized at that time. Changes to assumptions used in the Black-Scholes optionpricing model and the forfeiture rate could significantly impact the compensation expense recognized by the Company. The Company considered itshistorical experience of pre-vesting option forfeitures as the basis to arrive at its estimated pre-vesting option forfeiture rates of 11% and 17% per year for theyears ended December 31, 2016 and 2015, respectively. The Company would report cash flows resulting from tax deductions in excess of the compensationcost recognized from those options (excess tax benefits) as financing cash flows, if applicable. For stock-based payments to consultants, the fair value of the stock-based award is used to measure the transaction, as the Company believes this to be a morereliable measure of fair value than the services received. The fair value of the award is measured at the fair value on the date that the commitment forperformance by the nonemployee has been reached or performance is complete. Stock-based compensation to nonemployees is recognized as expense overthe requisite service period, which is generally the vesting period for awards, on a straight-line basis.Income TaxesThe Company accounts for income taxes under the asset and liability method. Under the asset and liability method, deferred tax assets and liabilities arerecognized for the future tax consequences attributable to the differences between the financial statement carrying amounts and tax base of assets andliabilities using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. A valuation allowance is established againstnet deferred tax assets for the uncertainty it presents of the Company’s ability to use the net deferred tax assets, in this case, primarily carryforwards of netoperating tax losses and research and development tax credits. In assessing the realizability of net deferred tax assets, the Company assesses the likelihoodthat net deferred tax assets will be recovered from future taxable income, and to the extent that recovery is not “more likely than not” or there is insufficientoperating history, a valuation allowance is established. The Company records the valuation allowance in the period theF-15Company determines that it is more likely than not that net deferred tax assets will not be realized. For the years ended December 31, 2016 and 2015, theCompany has provided a full valuation allowance for all net deferred tax assets due to their current realization being considered remote in the near term.Uncertain tax positions taken or expected to be taken in a tax return are accounted for using the more likely than not threshold for financial statementrecognition and measurement. The Company recognizes interest and penalties related to uncertain tax positions in income tax expense. No material uncertaintax positions have been identified or recorded in the financial statements as of December 31, 2016 and 2015.Comprehensive lossComprehensive loss includes certain changes in equity that are excluded from net loss. Specifically, unrealized gains and losses on short and long-termavailable-for-sale investments are included in comprehensive loss.Concentration RisksFinancial instruments that potentially subject the Company to credit risk consist principally of cash and cash equivalents and uncollateralized accountsreceivable. The Company maintains the majority of its cash balances in the form of cash deposits in bank checking and money market accounts in amounts inexcess of federally insured limits. Management believes, based upon the quality of the financial institution, that the credit risk with regard to these deposits isnot significant.The Company sells its instruments, consumables, sample processing services, custom assay development services and contracted research and developmentservices primarily to biopharmaceutical companies, academic institutions and molecular labs. The Company routinely assesses the financial strength of itscustomers and credit losses have been minimal to date.The top two customers accounted for 29% and 12% of the Company’s revenue for the year ended December 31, 2016, compared with 38% and 7% for theyear ended December 31, 2015. The Company derived 0% and 8% of its total revenue from grants and contracts, primarily from one organization during theyears ended December 31, 2016 and 2015. The largest two customers accounted for approximately 28% and 15% of the Company’s net accounts receivableas of December 31, 2016. The largest two customer account for approximately 32% and 25% of the Company’s net accounts receivable at December 31,2015.The Company currently relies on a single supplier to supply a subcomponent used in the HTG EdgeSeq processors and a second supplier to provide rawmaterials used in its HTG EdgeSeq proprietary panels. A loss of either of these suppliers could significantly delay the delivery of products or the completionof services to be performed by our VERI/O laboratory, which in turn would materially affect the Company’s ability to generate revenue.New Accounting PronouncementsIn May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”), which supersedes nearly all existing revenuerecognition guidance under U.S. GAAP. The core principle of ASU 2014-09 is to recognize revenues when promised goods or services are transferred tocustomers in an amount that reflects the consideration to which an entity expects to be entitled for those goods or services. ASU 2014-09 defines a five-stepprocess to achieve this core principle and, in doing so, more judgment and estimates may be required within the revenue recognition process than arerequired under existing U.S. GAAP.In March 2016, the FASB issued ASU No. 2016-08, Revenue Recognition: Clarifying the new Revenue Standard’s Principal-Versus-Agent Guidance (“ASU2016-08”). The standard amends the principal-versus-agent implementation guidance and illustrations in ASU 2014-09. ASU 2016-08 clarifies that an entityshould evaluate whether it is the principal or the agent for each specified good or service promised in a contract with a customer. As defined in ASU 2016-08,a specified good or service is “a distinct good or service (or a distinct bundle of goods or services) to be provided to the customer.” Therefore, for contractsinvolving more than one specified good or service, the Company may be the principal in one or more specified goods or services and the agent for others.In April 2016, the FASB issued ASU No. 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing.The amendments in this standard affect the guidance in ASU 2014-09 by clarifying two aspects: identifying performance obligations and the licensingimplementation guidance.In May 2016, the FASB issued ASU No. 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow Scope Improvements and PracticalExpedients. The amendments in this standard affect the guidance in ASU 2014-09 by clarifying certain specific aspects of ASU 2014-09, includingassessment of collectability, treatment of sales taxes and contract modifications, and providing certain technical corrections.F-16The new revenue standard and the standards that amend it are effective for public entities for fiscal years and interim periods within those fiscal yearsbeginning after December 15, 2017, using either of the following transition methods: (i) a full retrospective approach reflecting the application of thestandard in each prior reporting period with the option to elect certain practical expedients, or (ii) a retrospective approach with the cumulative effect ofinitially adopting ASU 2014-09 recognized at the date of adoption (which includes additional footnote disclosures). The Company is in the initial stages ofevaluating the effect of adoption of ASU 2014-09 on its financial statements and continues to evaluate the available transition methods. The Company hasbegun assessing the standard as it will pertain to its collaborative arrangements with multiple deliverables, which includes performing a detailed review of itsexisting key contracts and comparing historical accounting policies and practices to the new standard. The Company will continue its evaluation of thestandards update through the date of adoption. In July 2015, the FASB issued ASU No. 2015-11, Inventory: Simplifying the Measurement of Inventory. The standard requires inventory within the scope ofthe ASU to be measured using the lower of cost and net realizable value. The changes apply to all types of inventory, except those measured using LIFO orretail inventory method, and are intended to more clearly articulate the requirements for the measurement and disclosure of inventory and to simplify theaccounting for inventory by eliminating the notions of replacement cost and net realizable value less a normal profit margin. The standard will be effectivefor fiscal years and interim periods within those fiscal years beginning after December 15, 2016. The Company does not believe the adoption of this standardwill have a significant impact on its financial statements.In February 2016, the FASB issued ASU No. 2016-02, Leases, (“ASU 2016-02”). Under this standard, which applies to both lessors and lessees, lessees will berequired to recognize for all leases (except for short-term leases) a lease liability, which is a lessee’s obligation to make lease payments arising from a leasemeasured on a discounted basis, and a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for thelease term. Leases will be classified as either financing or operating, with classification affecting the pattern of expense recognition in the income statement.The new standard is effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2018. A modified retrospectivetransition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative periodpresented in the financial statements, with certain practical expedients available. The effect of adoption of this standard on our financial statements willdepend on the leases existing at January 1, 2018. Based on the Company’s preliminary assessment of its office and equipment leases that are in place as ofDecember 31, 2016, however, and considering the practical expedients, the Company expects that adoption of ASU 2016‑02 will not have a material effecton its statements of operations, will result in a gross-up on its balance sheets of less than $3.0 million relating to office and equipment leases and will have noeffect on its statements of cash flows. The Company will continue to assess the new guidance and its potential applicability to the other existing agreements,or to new agreements that it may enter into subsequent to December 31, 2016, through the date of adoption. In April 2016, the FASB issued ASU No. 2016-09, Share-Based Payment: Simplifying the Accounting for Share-Based Payments. The standard addressesseveral aspects of the accounting for employee share-based payment transactions, including the accounting for income taxes, forfeitures and statutory taxwithholding requirements, as well as classification in the statement of cash flows. The new standard will be effective for fiscal years and interim periodswithin those fiscal years beginning after December 15, 2016. The Company does not expect the immediate recognition of income taxes under this standard tohave a material impact on its statements of operations as it has recorded a full valuation allowance on all deferred tax assets. The Company is currentlyevaluating the impact of the remainder of this guidance on its financial statements. In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses, which requires the measurement of expected credit losses forfinancial instruments carried at amortized cost held at the reporting date based on historical experience, current conditions and reasonable forecasts. Theupdated guidance also amends the current other-than-temporary impairment model for available-for-sale debt securities by requiring the recognition ofimpairments relating to credit losses through an allowance account and limits the amount of credit loss to the difference between a security’s amortized costbasis and its fair value. In addition, the length of time a security has been in an unrealized loss position will no longer impact the determination of whether acredit loss exists. The main objective of this ASU is to provide financial statement users with more decision-useful information about the expected creditlosses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. The standard will be effective forfiscal years and interim periods within those fiscal years beginning after December 15, 2019. Early adoption is permitted for fiscal years and interim periodswithin those fiscal years beginning after December 15, 2018. The Company does not believe the adoption of this standard will have a significant impact onits financial statements, given the high credit quality of the obligors to its available-for-sale debt securities and its limited history of bad debt expenserelating to trade accounts receivable. In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments,(“ASU 2016-15”), which addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice in how certain cash receiptsand cash payments are presented and classified in the statement of cash flows. ASU 2016-15 is effective for fiscal years beginning after December 15, 2017,including interim periods within those fiscal years with early adoption permitted, including adoption in an interim period. When considering the activitywithin the Company’s statements ofF-17cash flow as of the years ended December 31, 2016 and 2015, the Company does not believe the adoption of this standard will have a significant impact onits financial statements. Note 3. InventoryInventory, net of allowance, consisted of the following as of the date indicated: December 31, 2016 2015 Raw materials $1,222,437 $1,274,840 Work in process 1,762 — Finished goods 557,161 1,210,780 Total gross inventory 1,781,360 2,485,620 Less inventory allowance (270,307) (284,319) $1,511,053 $2,201,301 Note 4. Fair ValueFinancial assets and liabilities measured at fair value are classified in their entirety in the fair value hierarchy, based on the lowest level input significant tothe fair value measurement. The following table classifies the Company’s financial assets and liabilities measured at fair value on a recurring basis atDecember 31, 2016 and 2015, respectively, in the fair value hierarchy: Balance at December 31, 2016 Level 1 Level 2 Level 3 Total Asset included in: Cash and cash equivalents Money market securities $6,443,102 $— $— $6,443,102 Investments available-for-sale at fair value U.S. government obligations $1,300,663 $— $— $1,300,663 Corporate debt securities $— $3,004,238 $— $3,004,238 Balance at December 31, 2015 Level 1 Level 2 Level 3 Total Asset included in: Cash and cash equivalents Money market securities $3,290,490 $— $— $3,290,490 Investments available-for-sale at fair value U.S. government obligations $3,298,014 $— $— $3,298,014 U.S. government agency obligations $— $14,589,378 $— $14,589,378 Corporate debt securities $— $12,918,016 $— $12,918,016 There were no other financial instruments subject to fair value measurement on a recurring basis. Transfers to and from Levels 1, 2 and 3 are recognized at theend of the reporting period. There were no transfers between levels for the years ended December 31, 2016 and 2015. Level 1 instruments include investments in money market funds and U.S. Treasuries. These instruments are valued using quoted market prices for identicalunrestricted instruments in active markets. The Company defines active markets for debt instruments based on both the average daily trading volume and thenumber of days with trading activity. Level 2 instruments include U.S. government agency obligations and corporate debt securities. Valuations of Level 2instruments can be verified to quoted prices, recent trading activity for identical or similar instruments, broker or dealer quotations or alternative pricingsources with reasonable levels of price transparency. Consideration is given to the nature of the quotations (e.g. indicative or firm) and the relationship ofrecent market activity to the prices provided from alternative pricing sources.Fair values of these assets and liabilities are based on prices provided by independent market participants that are based on observable inputs using market-based valuation techniques. These valuation models and analytical tools use market pricing or similar instruments that are both objective and publiclyavailable, including matrix pricing or reported trades, benchmark yields, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bidsand/or offers. The Company did not adjust any of the valuationsF-18received from these third parties with respect to any of its Level 1 or 2 securities for either of the years ended December 31, 2016 or 2015. Note 5. Available for Sale SecuritiesThe Company’s portfolio of available-for-sale securities comprises U.S. Treasuries, U.S. government sponsored agency obligations and high credit qualitycorporate debt securities. Initial investment in available-for-sale securities was made during the quarter ended June 30, 2015 as a result of funding receivedthrough the IPO. The following is a summary of the Company’s available-for-sale securities at December 31, 2016: December 31, 2016 Gross Gross Fair Value Amortized Unrealized Unrealized (Net Carrying Cost Gains Losses Amount) U.S. Treasury securities and obligations of U.S. government agencies$1,300,151 $512 $— $1,300,663 Corporate debt securities 3,005,840 — (1,602) 3,004,238 Total available-for-sale securities$4,305,991 $512 $(1,602) $4,304,901 The following is a summary of the Company’s available-for-sale securities at December 31, 2015: December 31, 2015 Gross Gross Fair Value Amortized Unrealized Unrealized (Net Carrying Cost Gains Losses Amount) U.S. Treasury securities and obligations of U.S.government agencies$17,914,136 $— $(26,744) $17,887,392 Corporate debt securities 12,932,629 397 (15,010) 12,918,016 Total available-for-sale securities$30,846,765 $397 $(41,754) $30,805,408 The net adjustment to unrealized gain (loss) on short and long-term available-for-sale securities in other comprehensive income (loss) totaled $40,267 and$(41,357), for the years ended December 31, 2016 and 2015, respectively.Contractual maturities of debt investment securities at December 31, 2016 are shown below. Expected maturities will differ from contractual maturitiesbecause the issuers of the securities may have the right to prepay obligations without prepayment penalties. 2016 Maturing in one year or less$4,304,901 Maturing in one to three years — Total available-for-sale securities$4,304,901 The following table shows the gross unrealized losses and fair values of the Company’s investments that have unrealized losses, aggregated by investmentcategory and length of time that individual securities have been in a continuous unrealized loss position as of December 31, 2016: Under 1 Year 1 to 2 Years Total Gross Gross Gross Fair Unrealized Fair Unrealized Fair Unrealized Value Losses Value Losses Value Losses U.S. Treasury securities and obligations of U.S. government agencies$— $— $— $— $— $— Corporate debt securities 1,304,738 (1,602) — — 1,304,738 (1,602)Total available-for-sale securities with unrealized losses$1,304,738 $(1,602) $— $— $1,304,738 $(1,602) For debt securities, the Company determines whether it intends to sell or if it is more likely than not that it will be required to sell impaired securities. Thisdetermination considers current and forecasted liquidity requirements, regulatory and capital requirements and securities portfolio management. For allimpaired debt securities for which there was no intent or expected requirement to sell, theF-19evaluation considers all available evidence to assess whether it is likely the amortized cost value will be recovered. The Company conducts a regularassessment of its debt securities with unrealized losses to determine whether securities have other-than-temporary impairment considering, among otherfactors, the nature of the securities, credit rating or financial condition of the issuer, the extent and duration of the unrealized loss, expected cash flows ofunderlying collateral, market conditions and whether the Company intends to sell or it is more likely than not the Company will be required to sell the debtsecurities. The Company did not have any other-than-temporary impairment in its U.S. Treasury securities, obligations of U.S. government agencies orcorporate debt securities for the years ending December 31, 2016 and 2015. Note 6. Property and EquipmentProperty and equipment, net consists of the following: December 31, 2016 2015 Office equipment $447,580 $257,296 Leasehold improvements 1,847,378 224,061 Laboratory and manufacturing equipment 2,659,621 2,442,191 Field equipment 131,096 180,355 Software 150,451 140,248 Construction in progress 176,963 175,501 5,413,089 3,419,652 Less: accumulated depreciation and amortization (2,142,892) (1,487,439) $3,270,197 $1,932,213 During the years ended December 31, 2016 and 2015, the Company retired fully-depreciated property and equipment with a gross carrying value of $589,179and $1,066,246, respectively. These assets were previously contained in office equipment, leasehold improvements and laboratory and manufacturingequipment. Note 7. Accrued LiabilitiesAccrued liabilities consist of the following: December 31, 2016 2015 Employee compensation and benefits $1,088,773 $1,240,314 Employee compensation for future absences 173,533 154,107 Interest 82,591 77,917 Professional fees 79,029 140,385 Other 246,360 302,545 $1,670,286 $1,915,268 Note 8. Debt Obligations.Growth Term LoanIn August 2014, the Company entered into a Loan and Security Agreement (the “Growth Term Loan”) with a syndicate of two lending institutions, OxfordFinance LLC and Silicon Valley Bank, which was amended in August 2015 and June 2016. The first tranche of the Growth Term Loan (“Growth Term LoanA”) of $11.0 million was funded in August 2014. The second tranche of $5.0 million (“Growth Term Loan B”) was funded in March 2016. With the August2015 amendment, the interest-only payment period for the Growth Term Loan was extended until April 1, 2016. Following the interest-only payment period,the Company became obligated to make equal monthly payments of principal and interest amortized over the remaining term of the loan for all funds drawnunder the Growth Term Loan. Growth Term Loan A and B bear interest at the fixed rates of 8.5% and 8.75%, respectively, and mature in September 2018. Theamended agreement includes the following prepayment fees: (i) 2% of the principal amount repaid if the growth term loan is prepaid after the first anniversarybut on or prior to the second anniversary of the August 2015 amendment and (ii) 1% of the principal amount repaid if the growth term loan is repaid after thesecond anniversary of the August 2015 amendment and prior to maturity.F-20The Growth Term Loan requires the Company to maintain compliance with specific operating and reporting covenants and does not require financialcovenants. The Growth Term Loan is secured by a lien covering substantially all of the Company’s assets, excluding patents, trademarks and otherintellectual property rights (except for rights to payment related to the sale, licensing or disposition of such intellectual property rights) and certain otherspecified property. If the Company were to default under the Growth Term Loan, its lenders could foreclose on its assets, including substantially all of itscash, which is held in accounts with its lenders.The principal repayments due under the term loan as of December 31, 2016, are as follows: 2017 $6,389,782 2018 5,163,822 Total Growth Term Loan payments 11,553,604 Less discount and deferred financing costs (263,378)Plus final fee premium 488,693 Total Growth Term Loan, net $11,778,919 Following the August 2015 amendment, the final payment percentage on the Growth Term Loan was increased to 4.75%. After amendment, the final feepremium relating to Growth Term Loan A is $522,500. The final fee premium relating to the Growth Term Loan B is $237,500. Each final fee premium isbeing amortized to interest expense, using the effective interest method, over the term of the related Growth Term Loan tranche. Total Growth Term Loanfinal fee premium amortization for the year ended December 31, 2016 was $273,786, compared to $158,707 for the year ended December 31, 2015.The Company received Growth Term Loan A proceeds net of a $0.3 million original issuance discount. In addition, in connection with Growth Term Loan A,the Company issued preferred stock warrants to the lenders exercisable for 2,512,562 shares of Series E redeemable convertible preferred stock (“Series EStock”) at a price of $0.2189 per share, which resulted in the recording of a warrant discount. Upon the completion of the IPO in May 2015, the warrants wereautomatically converted to common stock warrants exercisable for up to 23,396 shares of common stock at an exercise price of $23.51 per share. The warrantsexpire on August 22, 2024. The original issuance discount and warrant discount are being amortized, using the effective interest method, over the term of theGrowth Term Loan A.In connection with the funding of the Growth Term Loan B, in March 2016, the Company issued Oxford Finance LLC a common stock warrant exercisablefor 45,307 shares of common stock at an exercise price of $2.759 per share, and the warrant issued to Silicon Valley Bank automatically became exercisablefor an additional 5,317 shares of common stock at an exercise price of $23.51 per share in accordance with the terms of the Growth Term Loan. The fair valueof this discount of $122,460, was calculated using the Black-Scholes option pricing model at March 31, 2016. The warrant discount is being amortized tointerest expense, using the effective interest method, over the term of the Growth Term Loan B.Total amortization expense for the Growth Term Loan A and B warrant discounts and the Growth Term Loan A original issuance discount was $249,868 and$170,954 for the years ended December 31, 2016 and 2015, respectively, and is included in interest expense in the accompanying statements of operations.The Company has also recorded approximately $24,909 and $52,377 of deferred financing costs net of the related debt in the accompanying balance sheetsas of and December 31, 2016 and 2015, respectively, in accordance with ASU 2015-03, which was adopted on January 1, 2016. Growth Term Loan deferredfinancing cost amortization expense was $27,468 and $22,754 for the years ended December 31, 2016 and 2015, respectively, and is included in interestexpense in the accompanying statements of operations.The June 2016 Growth Term Loan amendment modified the definitions of permitted indebtedness and permitted liens to provide for an increased maximumamount of permitted indebtedness, authorize a new category of permitted indebtedness and authorize a new category of permitted liens.Convertible NotesOn December 30, 2014, the Company entered into two separate subordinated convertible promissory note agreements (the “Note Agreements”). The NoteAgreements provided that upon a qualified equity financing, pursuant to which the Company raised either through a qualified initial public offering ofcommon stock or through a qualifying private placement of convertible preferred stock, gross offering proceeds of at least $20,000,000 from the sale of sharesto new investors, the outstanding principal amount and all accrued but unpaid interest under convertible notes issued pursuant to the Note Agreements wouldautomatically convert into shares of common stock or preferred stock, whichever was sold in the offering. The number of shares into which the convertiblenotes were convertible was equal to the outstanding principal and accrued interest divided by the price per share paid by investors purchasing such newlyissued equity securities.F-21Draws under the first Note Agreement in February, March and April 2015 totaled $4.5 million. There were no draws under the second Note Agreement prior tothe IPO in May 2015. The Company recorded a $741,828 discount for the estimated fair value of warrants issued in connection with the debt and $75,520 ofdeferred financing costs incurred in connection with the issuance of notes under the Note Agreements. Amortization of the Note Agreement discount anddeferred financing fees associated with the Note Agreements was $0 and $112,134 for the years ended December 31, 2016 and 2015, respectively, which wasincluded in interest expense in the accompanying statements of operations.Settlement of Convertible Debt upon IPO ClosingUpon closing of the IPO in May 2015, all outstanding principal ($4.5 million) and accrued interest under the convertible notes issued pursuant to the firstNote Agreement was converted into 324,591 shares of common stock at a conversion price of $14.00 per share. The Company evaluated the terms of the NoteAgreement at inception and concluded that it should be accounted for as share settled debt as it falls within the scope of ASC 480, Distinguishing Liabilitiesfrom Equity. While the issued Note Agreements contain multiple events that could trigger settlement at different values, the Company evaluated all of thepossible outcomes and considered the qualified initial public offering outcome to be predominant at more than a 50% probability of occurrence. The IPOsettlement triggering event settles the fixed monetary amount of the debt known at inception with a variable number of shares of common stock based on theprice of the common stock at settlement and therefore meets the definition of share settled debt. The Company compared the value of the common stockissued to settle the debt with the carrying amount of the debt at the IPO closing date of May 2015, net of unamortized discount and deferred financing costs,and recognized a loss on settlement of debt of $705,217 in the accompanying statements of operations for the year ended December 31, 2015. The value ofthe debt adjusted to the value of the common stock paid was reclassified from debt to equity. Note 9. Other AgreementsNuvoGen ObligationThe Company entered into an asset purchase agreement in 2001, as amended, with NuvoGen Research, LLC (“NuvoGen”) to acquire certain intellectualproperty from NuvoGen. The Company accounted for the transaction as an asset acquisition. However, as the intellectual property was determined to nothave an alternative future use, the upfront consideration was expensed. In exchange for the intellectual property, the Company initially paid NuvoGen 5,587shares of the Company’s common stock, fixed payments of $740,000 over the first two years of the agreement and agreed to pay NuvoGen 6% of its yearlyrevenue, which would be applied to any fixed payments, until the total aggregate cash compensation paid to NuvoGen under the agreement equaled$15,000,000. Certain terms of the agreement were amended in November 2003, September 2004, November 2012 and February 2014. Pursuant to the latestamendment to the agreement, the Company became required to pay a yearly fixed fee, in quarterly installments, to NuvoGen in the range of $543,750 to$800,000, and may defer any accrued revenue-based payments. No accrued revenue-based payments have been deferred through December 31, 2016.Beginning in 2018, we are obligated to pay the greater of $400,000 or 6% of the Company’s applicable annual revenues, plus amounts, if any, deferred in2017 by which 6% of revenue exceeds the applicable fixed fee plus 5% interest on such deferred amounts until the obligation is paid in full. The obligationis currently non-interest bearing and was, but is no longer, secured by certain patents and trademarks.Pursuant to the closing of the Growth Term Loan in August 2014 (see Note 8), the Company agreed to accelerate certain minimum payments pursuant to theasset purchase agreement and NuvoGen agreed to terminate its security interest in the originally pledged patents and trademarks. Remaining minimumpayments that were otherwise due for 2014, 2015 and the first quarter of 2016, amounting to $868,750 were paid in advance. The acceleration of paymentsdid not significantly change the minimum cash flows and therefore had no significant accounting effect. Since quarterly payments resumed in the secondquarter of 2016, $543,750 has been paid to NuvoGen toward the remaining obligation.The remaining minimum principal payments due to NuvoGen at December 31, 2016 are as follows, although actual payments could be significantly morethan provided in the table in 2018 and beyond to the extent that 6% of revenue exceeds $400,000: 2017 $800,000 2018 400,000 2019 400,000 2020 400,000 2021 400,000 2022 and beyond 6,298,743 Total NuvoGen obligation payments 8,698,743 Less discount (76,636)Total NuvoGen obligation, net $8,622,107F-22 The Company recorded the obligation at the estimated present value of the future payments using a discount rate of 2.5%, the Company’s estimate of itseffective borrowing rate for similar obligations. Unamortized debt discount was $76,636 and $283,621 at December 31, 2016 and 2015, respectively.Discount accreted during the years ended December 31, 2016 and 2015 was $206,985, and $281,013, respectively. Illumina, Inc. AgreementThe Company entered into a development and component supply agreement in 2014 with Illumina, Inc. (“Illumina”) for the development and worldwidecommercialization by the Company of up to two complete diagnostic gene expression profiling tests for use with Illumina’s diagnostic instruments, usingcomponents supplied by Illumina. The Company refers to these diagnostic gene expression profiling tests as in vitro diagnostic (“IVD”) test kits. The IVDtest kits originally could be used in up to two discrete testing fields chosen by the Company, one or both of which could relate to oncology for breast, lung,lymphoma or melanoma tumors, and one of which could relate to transplant, chronic obstructive pulmonary disease, or immunology/autoimmunity. TheCompany provided notice to Illumina of its first testing selection during the quarter ended March 31, 2015. The Company is in discussions with Illuminaregarding, among other things, a potential extension of the original October 2016 deadline to select a second field.In the fourth quarter of 2015, the Company and Illumina agreed to a development plan for the development and regulatory approval of the selected IVD testkit, following which the Company paid Illumina a $100,000 fee. Illumina has agreed to provide development and regulatory support as part of the plan,which relates to the Company’s HTG EdgeSeq ALKPlus Assay, now in development. The Company is also required to pay Illumina up to $1.0 million in theaggregate upon achievement of specified regulatory milestones relating to the IVD test kit, though none of these regulatory milestones have been reachedthrough December 31, 2016. In addition, the Company has agreed to pay Illumina a single digit percentage royalty on net sales of any IVD test kit that theCompany commercializes pursuant to the agreement. Ongoing research and development costs for these programs have been expensed as incurred.The agreement will expire on the earlier of October 2019 or the date which the last to expire development plan under the agreement is completed. TheCompany may terminate the agreement at any time upon 90 days’ written notice and may terminate any development plan under the agreement upon 30days’ prior written notice. Illumina may terminate the agreement upon 30 days’ prior written notice if the Company undergoes certain changes of control.Either party may terminate the agreement upon the other party’s material breach of the agreement that remains uncured for 30 days, or upon the other party’sbankruptcy.Invetech PTY Ltd. AgreementIn September 2015, the Company entered into a development and professional services agreement with Invetech PTY Ltd. (“Invetech”), for the conduct ofresearch and development of a next generation automated sample library preparation instrument. This instrument is intended for laboratories with lowvolume sample throughput and further is intended to automate assays designed for the Company’s V2 chemistry. This instrument design and developmentprogram is being referred to as Project JANUS.The agreement requires the execution of a development plan for each stage of the project. Upon full execution and delivery of each development plan, theCompany will pay Invetech development fee installments for that development plan. Stage 0 was completed during the second half of 2015. In July 2016, theCompany entered into an amendment with Invetech, extending and concluding Stage 1.1 through the end of July 2016 and further suspending Invetech’sproject development activities until the Company makes the decision to resume further external development efforts. We anticipate resumption ofdevelopment efforts in 2017 as our V2 chemistry nears commercialization. The Invetech agreement remains in effect through completion of all tasks and theCompany’s acceptance of all deliverables under each development plan unless terminated earlier as provided for in the agreement.Research and development expense included in the statements of operations relating to Invetech development fee installments was $2.3 million and $0.3million for the years ended December 31, 2016 and 2015, respectively. Life Technologies Corporation AgreementIn March 2016, the Company entered into an Authorization, Supply and Regulatory Authorization Agreement with Life Technologies Corporation (“LTC”),a wholly owned subsidiary of Thermo Fisher Scientific, Inc., for the development and worldwide commercialization by the Company of up to five RNA-basednext generation sequencing panels (“HTG Assays”) for use with LTC’s sequencing instruments and components supplied to end-users by LTC.Pursuant to the agreement, the Company has agreed to obtain its requirements for certain components to be used in the development of HTG Assays fromLTC. In March 2016, the Company purchased approximately $250,000 of LTC products and equipment inF-23accordance with this agreement. LTC has agreed to provide support in the Company’s efforts to obtain regulatory approval of the HTG Assays. The Companyis required to pay LTC a milestone payment in the mid-six figure dollar range upon certain regulatory achievements for each HTG Assay. In addition, theCompany has agreed to pay LTC a single digit percentage royalty on net sales of any HTG Assays that the Company commercializes pursuant to theagreement. No milestone or royalty payments have been accrued or made pursuant to this agreement as of December 31, 2016.Absent early termination, the initial term of the agreement will expire in March 2021 and thereafter will automatically renew for additional two year terms foras long as the Company continues to develop or sell HTG Assays. Either party may terminate the agreement by written notice delivered to the other party atleast 60 days prior to the expiration of any then-current term. Either party may also terminate the agreement (a) upon the other party’s material breach thatremains uncured for 30 days, (b) upon the other party’s bankruptcy or (c) upon written notice in the event the party providing notice reasonably determinesthat continued performance under the agreement would violate any regulatory law, or any other applicable law or regulation or U.S. Food and DrugAdministration (“FDA”) guidance. Bristol-Myers Squibb AgreementIn May 2016, the Company entered into a Collaboration Agreement with Bristol-Myers Squibb (“BMS”) for the development, in collaboration with BMS, oftwo custom assays based on the Company’s HTG EdgeSeq technology. Following development of each custom assay, at BMS’s request, the Company mayalso perform sample processing services using such custom assay(s) and/or supply the custom assay(s) to BMS or its third-party subcontractors. Additionalcustom assay development related to immuno-oncology research may be undertaken pursuant to the agreement in accordance with a mutually acceptablework plan, which is incorporated by written amendment. BMS paid an initial non-refundable, non-creditable program set-up fee, and has agreed to pay an annual non-refundable, non-creditable project managementfee in quarterly installments, as well as a fee for each custom assay developed. Each such fee was or is in the low six-figure range. At BMS’s request, customassay kits will be supplied and sample processing services will be performed by the Company. The agreement will expire on May 11, 2019 or, if a project is then ongoing, the date of delivery of the final report for such project. Either party may terminatethe agreement upon the other party’s material breach or default in the performance of a material obligation under the agreement or if certain warranties orrepresentations are untrue in any material respect (either a “Default”) and such Default remains uncured for 60 days or such longer period if the Defaultcannot be cured within 60 days. BMS may terminate a project upon 90 days’ prior written notice to the Company.The agreement is a multiple-element arrangement under ASC 605-25. Custom assay development services, custom kit sales and sample processing serviceswere each designated as an option to purchase additional products or services as described under ASC 605-25, and, as such, will not be considered in theinitial allocation of contract consideration based on relative selling prices.Each custom assay development service has three phases and each phase comprises multiple deliverables. Completion of all three phases is required for BMSto derive benefit from the respective deliverables; therefore, the three phases of a custom assay’s development will be combined as one unit of accounting forrevenue recognition purposes.Under ASC 605-25, fixed or determinable contract consideration is allocated to the deliverables with stand-alone value, and revenue is recognized for eachsuch deliverable according to the method appropriate for each deliverable. All of the fixed or determinable contract consideration will be allocated to onedeliverable, which is the research and development services culminating in the delivery of two custom assays.The quarterly project management fees and the initial set-up fee will be recognized as the custom assay development services are performed on a proportionalperformance basis. Each custom assay development fee will also be recognized on a proportional performance basis as these services are provided. Becausethe custom assay fees are contingent upon completion of each individual phase of the design project and the decision by BMS to proceed to the next phase,the amount recognized will be limited to that which BMS is contractually obligated to pay upon completion of that phase. For the year ended December 31, 2016, $189,442 was recognized under the agreement as service revenue in the statements of operations and $160,106 wasrecognized as deferred revenue in the balance sheets as of December 31, 2016. No revenue or deferred revenue was recognized relating to this BMSagreement for the year ended December 31, 2015. F-24Merck KGaA AgreementIn October 2016, the Company entered a Master CDx Agreement, or master agreement, with Merck KGaA, Darmstadt, Germany, (“Merck KGaA”) to serve asthe basis for one or more project agreements to develop, seek regulatory approval for, and commercialize companion diagnostics for Merck KGaA drugcandidates and corresponding therapeutics. Concurrently, the parties entered into a first project agreement under the master agreement concerning theCompany’s sequencing-based DLBCL cell of origin assay (“DLBCL Assay”) and Merck KGaA’s investigational drug, M7583 (the “Project”).The Project has three stages aligned with timelines and outcomes of M7583 development. During stages 1 and 2, the Company will perform specifiedDLBCL Assay development activities. In stage 3, the Company will obtain applicable regulatory approvals on the DLBCL Assay and make it commerciallyavailable in the United States and certain other jurisdictions.Stages 2 and 3 each have an up-front payment and all stages of the Project have milestone-based payments. The Company is eligible to receive up to a totalof approximately $1,850,000 over the next five years and $9,900,000 over a period of approximately nine years in fixed or determinable contractconsideration comprising up-front and milestone payments. In addition, during stages 1 and 2 of the Project, the Company will sell DLBCL Assay kits and/orperform sample processing services upon request of, and as instructed by, Merck KGaA. The up-front and milestone-based payments could be delayed due tothe risks of completing development activities and obtaining regulatory approvals within projected timeframes. Merck KGaA may terminate the Project by providing 90 days’ prior written notice to the Company, at which point Merck KGaA will reimburse HTG for costsincurred during the termination period, of an amount not to exceed non-cancellable, non-reimbursable expenses, and HTG will reimburse Merck KGaA forany costs that have been prepaid without being incurred prior to termination. Further, either party may also terminate the agreement upon the other party’smaterial breach that remains uncured for 45 days or upon the other party’s bankruptcy.The agreement is a multiple-element arrangement under ASC 605-25. Kit sales and sample processing services have been designated as an option to purchaseadditional products or services as described under ASC 605-25, and, as such, will not be considered in the initial allocation of contract consideration basedon relative selling prices. The remaining deliverables, including licenses to HTG patents and research and development services, do not have standalonevalue and are combined into one unit of accounting. Under ASC 605-25, fixed or determinable contract consideration is allocated to the deliverables with stand-alone value, and revenue is recognized for eachsuch deliverable according to the method appropriate for each deliverable. All of the fixed or determinable contract consideration will be allocated to onedeliverable, which is the research and development services. Non-refundable up‑front payments will be received at the initiation of stages 2 and 3. These payments will be recognized as revenue over the period that theresearch services are expected to occur. All other payments are contingent upon completion of milestones. Costs incurred to date compared to total expectedcosts are used to determine proportional performance, as this is considered to be representative of the delivery of outputs under the Project. Revenuerecognized at any point in time is limited to cash received and amounts contractually due. The Company did not receive any payments and did not recognizeany revenue related to the Project for the year ended December 31, 2016.Other Agreements With Related-PartiesRefer to Note 16 below for discussion of agreements with related parties. F-25Note 10. Net Loss Per ShareNet loss attributable to common stockholders per share is computed by dividing the net loss allocable to common stockholders by the weighted-averagenumber of shares of common stock or common stock equivalents outstanding. Outstanding stock options, warrants and Convertible Preferred Stock have notbeen included in the calculation of diluted net loss attributable to common stockholders per share because to do so would be anti-dilutive. Accordingly, thenumerator and the denominator used in computing both basic and diluted net loss per share for each period are the same. The following table provides areconciliation of the numerator and denominator used in computing basic and diluted net loss per share for the periods presented: Years Ended December 31, 2016 2015 Numerator: Net loss $(26,039,550) $(21,397,791)Accretion of stock issuance costs — (35,046)Accretion of discount on Series E warrants — (127,616)Series D and E Convertible Preferred Stock dividends — (1,165,932)Net loss attributable to common stockholders $(26,039,550) $(22,726,385)Denominator: Weighted-average common shares outstanding-basic and diluted 7,113,075 4,518,499 Net loss per share attributable to common stockholders, basic and diluted $(3.66) $(5.03) The following outstanding options, warrants and restricted stock units were excluded from the computation of diluted net loss per share for the periodspresented because their effect would have been anti-dilutive: Years Ended December 31, 2016 2015 Options to purchase common stock 1,161,705 736,645 Common stock warrant 219,723 169,099 Restricted stock units 355,499 27,500 Note 11. WarrantsIn connection with certain of its redeemable convertible preferred stock issuances, convertible debt financings and other financing arrangements, theCompany has issued warrants for shares of its common stock and various issues of its redeemable convertible preferred stock. On August 22, 2014, in connection with the Company’s entry into the Growth Term Loan (see Note 8), the Company issued to the two-lender syndicatewarrants exercisable for an aggregate of 2,512,562 shares of Series E stock at a price of $0.2189 per share. The warrants provide for cashless exercise at theoption of the holders, and contain provisions for the adjustment of the number of shares issuable upon the exercise of the warrant in the event of stock splits,recapitalizations, reclassifications, consolidations or dilutive issuances. In connection with the closing of the IPO in May 2015, the warrants becameexercisable for an aggregate of 23,396 shares of common stock at an exercise price of $23.51 per share. The warrants expire by their terms on August 22,2024, provided that the warrants will be automatically exercised on a cashless basis upon expiration if not previously exercised if the fair market value of ashare of the common stock exceeds the per share exercise price. In connection with the funding of the Growth Term Loan B, in March 2016 the Companyissued Oxford Finance LLC a common stock warrant exercisable for 45,307 shares of common stock at an exercise price of $2.759 per share, and the warrantoriginally issued to Silicon Valley Bank automatically became exercisable for an additional 5,317 shares of common stock at an exercise price of $23.51 pershare in accordance with the terms of the Growth Term Loan. On December 30, 2014, in connection with the Company’s Note Agreements (see Note 8) the Company agreed to issue warrants (“Convertible NoteWarrants”) exercisable for an aggregate of 9,311,586 shares of Series E Stock at a price of $0.2189 per share, for aggregate consideration of $1,354 onJanuary 15, 2015. The warrants provide for cashless exercise at the option of the holders, and contain provisions for the adjustment of the number of sharesissuable upon the exercise of the warrant in the event of stock splits, recapitalizations, reclassifications, consolidations or dilutive issuances. In connectionwith the closing of the IPO in May 2015, the Convertible Note Warrants became exercisable for an aggregate of 144,772 shares of common stock at the IPOprice of $14.00 per share. The Convertible Note Warrants expire by their terms on January 15, 2022. As the Convertible Note Warrants were issued inconjunction with and in order to establish a lending facility commitment, they were accounted for as a debt discount to be amortizedF-26over the life of the Note Agreements using the effective interest method and as a warrant liability, at fair value, as they were indexed to shares that could beredeemed for cash outside the control of the Company.The Company’s previously outstanding Series C-1 preferred stock warrants expired upon closing of the IPO as they were not exercised prior to orcontemporaneously with the closing of the IPO. As of May 11, 2015, 1,290,350 Series C-1 preferred stock warrants were forfeited and cancelled as they werenot exercised prior to the IPO.In connection with the closing of the IPO in May 2015, then outstanding Series C-2 preferred stock warrants became exercisable for an aggregate of 1,488shares of common stock at an exercise price of $24.23 per share. These warrants expired by their terms and without exercise in December 2015.In connection with the closing of the IPO in May 2015, the Company issued an aggregate of 6,729 shares of common stock to the holders of Series Dpreferred stock warrants, and received aggregate cash consideration for such exercise of $1,752.The following table shows the warrants outstanding by series for the periods presented: Shares of Common StockUnderlying Warrants atDecember 31, Series of Warrants 2016 2015 ExercisePrice/Share ($) Expiration DateSeries E redeemable convertible preferred stock warrants 28,713 23,396 23.51 2024Convertible note warrants 144,772 144,772 14.00 2022Common stock warrants 931 931 6.45 2019Common stock warrants 45,307 — 2.76 2026 During the year ended December 31, 2015 the Company recorded a loss of $239,683 on the change in fair value of the preferred stock and convertible notewarrants. The fair value of all preferred stock and convertible note warrants was updated prior to conversion at IPO, with the fair value change being chargedto loss from change in stock warrant valuation in the statements of operations. There was no similar loss recorded for the year ended December 31, 2016. Thepreferred stock warrant liability for outstanding Series C-2, Series D and Series E warrants was reclassified to additional paid-in-capital and recorded ascommon stock warrants upon the closing of the IPO. As such, the fair value of the preferred stock warrant liability was $0 at both December 31, 2016 and2015. Note 12. Redeemable Convertible Preferred StockOn February 4, 2014, the Company entered into the Series E Preferred Stock and Warrant Purchase Agreement (“Series E Agreement”) authorizing the saleand issuance of up to 99,132,024 shares of its Series E Stock for $0.2189 per share and warrants (“Series E Warrants”) to purchase up to an aggregate of33,044,008 shares of Series E Stock at an exercise price of $0.001 per share. Pursuant to the Series E Agreement, up to 49,566,012 shares of Series E Stocktogether with Series E Warrants to purchase up to an aggregate of 16,522,004 shares of Series E Stock would be offered at one or more closings of a firsttranche and the remainder of which would be offered in a second tranche.In connection with the Series E Preferred Agreement, the Company’s authorized shares were increased to 600,000,000 shares of Common Stock and472,083,383 shares of Preferred Stock.On February 4, 2014, the Company issued 34,099,476 shares of Series E Stock pursuant to the Series E Agreement at a price per share of $0.2189 per share.Along with the shares of Series E Stock, one Series E Warrant was issued for every three shares of Series E Stock purchased with a purchase price of $0.0001per Series E Warrant and an exercise price of $0.001 per share of Series E Stock for a total of 11,366,486 Series E Warrants. Each Series E Stock purchaser wasrequired to exercise the Series E Warrant in a simultaneous transaction with the purchase of shares of Series E Stock. The Company received aggregate grossproceeds of $7,476,879 from these issuances.On March 31, 2014, pursuant to a rights offering, the Company issued 354,062 shares of Series E Stock pursuant to the Series E Agreement at a price per shareof $0.2189 per share. Along with the shares of Series E Stock, one Series E Warrant was issued for each three shares of Series E Stock purchased with apurchase price of $0.0001 per Series E Warrant and an exercise price of $0.001 per share of Series E Stock for a total of 118,017 Series E Warrants. Each SeriesE Stock purchaser was required to exercise the Series E Warrant in a simultaneous transaction with the purchase of shares of Series E Stock. The Companyreceived aggregate gross proceeds of $77,634 for these issuances. The Series E Agreement provided for a second tranche on or before November 30, 2014,contingent upon the achievement of certain milestones, but was replaced by an alternative financing in the form of subordinated convertible promissorynotes to be issued under the Note Agreements (see Note 8).F-27It was determined that, given the nominal strike price of the Series E Warrants and the fact that the Series E Preferred Warrants were required to be exercisedimmediately upon issuance, the per share value of the Series E Warrants would be similar to the effective per share value of the Series E Stock, or $0.1645 pershare.The Series A/B/C/D Stock and Series E Stock had a par value of $0.001 per share.The Series D and Series E Stock liquidation preference was equal to two times the original issue price of the Series D Stock or Series E, respectively, plus anyaccrued but unpaid dividends whether or not declared. The Company has historically accreted up to the redemption amount and not the liquidation value,because additional amounts due under the liquidation rights was not considered probable at initial recording or as of the IPO in May 2015. Preferred Shares Carrying Valueat 5/11/15 PreferredShares BeforeIPO Common SharesAfter IPO Series A Stock $1,403,007 1,292,084 38,973 Series B Stock 2,100,149 6,789,712 75,835 Series C-1 Stock 4,569,063 13,242,612 191,406 Series C-2 Stock 2,225,619 9,948,331 93,757 Series D Stock 30,370,273 140,252,678 1,305,984 Series E Stock 7,879,873 45,989,722 428,237 Carrying value, excluding dividends $48,547,984 217,515,139 2,134,192 Series D Stock and Series E Stock cumulative dividends 8,808,065 — 374,632 Total $57,356,049 217,515,139 2,508,824 As of the IPO in May 2015, Series A Stock, Series B Stock, Series C-1 Stock, Series C-2 Stock, Series D Stock and Series E Stock conversion ratios were 0.030,0.011, 0.014, 0.009, 0.009 and 0.009, respectively, after consideration of the one-for-107.39 reverse split. When converted at May 11, 2015, all of theoutstanding preferred shares and cumulative accrued dividends on Series D Stock and Series E Stock were converted into 2,134,192 and 374,632 shares ofCommon Stock, respectively.The Company had historically accounted for the Series E Warrants as liabilities as such warrants were indexed to shares that could be redeemed for cashoutside the control of the Company. The Company allocated the total proceeds first to the Series E Warrants based on their fair value of approximately$1,890,000 and the remainder amounting to approximately $5,665,000 of the proceeds allocated to the Preferred Shares. The fair value of the Series EWarrants was estimated to approximate the fair value of the Series E Stock because of their nominal price. The amount allocated to the Series E Warrantsrepresented a discount to the Preferred Shares and was being accreted using the effective interest method up to the redemption amount from the respectiveissuance date to redemption date of five years. Accretion for the years ended December 31, 2016 and 2015 was $0 and $127,616, respectively. Uponimmediate exercise of the Series E Warrants, the amount recorded as warrant liability was reclassified to Preferred Shares, and issuance costs of $48,384 whichhad been allocated to the warrants were expensed. The Company was not accreting to the amount resulting from additional liquidation preference rightsunder the agreement because they were not considered probable at initial recording or at any point between then and the May 2015 IPO. The Companyadditionally analyzed the issuance of Series E Warrants with the Series E Stock, noting there was no resulting beneficial conversion feature. Following theIPO, all outstanding warrants previously exercisable for preferred stock became exercisable for common stock. The previously reported warrant liabilityassociated with the convertible warrants was applied to additional paid-in-capital.The Company’s Series D Stock and Series E Stock accrued cumulative dividends at 8% per annum on the original issue price of $0.2189, whether or notdeclared by the board of directors. In connection with the Company’s Growth Term Loan (see Note 8), the holders of both the Series D Stock and Series EStock agreed to waive their rights to cash dividends. As a result, only a share dividend, based on the cumulative dividends divided by the original issue price,could be paid upon declaration by the board of directors or upon the automatic conversion of the Company’s Preferred Stock. Dividends were being accretedbased on the number of days outstanding. All shares of Series D and Series E, together with accrued dividends, automatically converted into 374,632 sharesof the Company’s common stock (on as converted method) in connection with the initial closing of the IPO in May 2015. Note 13. Stockholders’ Equity (Deficit)Common StockThe Company amended its certificate of incorporation on May 11, 2015, to decrease the number of authorized shares from 600,000,000 to 200,000,000shares. The 200,000,000 authorized shares of common stock have a par value of $0.001 per share. As ofF-28December 31, 2016, 7,939,967 and 7,938,571 shares were issued and outstanding, respectively. As of December 31, 2015, 6,845,638 and 6,844,242 shareswere issued and outstanding, respectively.Each share of common stock is entitled to one vote. The shares of common stock have no preemptive or conversion rights, no redemption or sinking fundprovisions, no liability for further call or assessment, and are not entitled to cumulative voting rights. Treasury StockShares of common stock repurchased by the Company are recorded as treasury stock and result in an increase of stockholders’ equity (deficit) on the balancesheets. Reacquired common shares may be retired by resolution of the board of directors and resume the status of authorized and unissued common shares.There was no new treasury stock activity for the years ended December 31, 2016 and 2015. In January 2017, the Company’s Board of Directors retired 1,396shares of treasury stock to be returned to the status of authorized and unissued shares of the Company’s common stock.Preferred StockPursuant to the Company’s certificate of incorporation the Company has been authorized to issue 10,000,000 shares of preferred stock, each having a parvalue of $0.001. The preferred stock may be issued from time to time in one or more series with the authorization of the Company’s Board of Directors. TheBoard of Directors can determine voting power for each series issued, as well as designation, preferences, and relative, participating, optional or other rightsand such qualifications, limitations or restrictions thereof.Stock-based CompensationThe Company incurs stock-based compensation expense relating to the grants of RSUs and stock options to employees and non-employee directors andthrough its employee stock purchase plan. Amounts recognized in the statements of operations with respect to the Company’s stock-based compensationwere as follows: Year Ended December 31, 2016 2015 Selling, general and administrative $651,034 $367,000 Research and development 195,685 38,426 Cost of revenue 56,865 — $903,584 $405,426 The Company initially established the 2001 Stock Option Plan (“2001 Plan”), which included incentive and nonqualified stock options and restricted stockto be granted to directors, officers, employees, consultants and others. The 2001 Plan terminated and no further awards were granted under the 2001 Planupon the effective date of the Company’s 2011 Equity Incentive Plan (“2011 Plan”).In February 2014, pursuant to the Series E Agreement, the number of shares reserved under the 2011 Plan was increased to 20% of the total outstanding sharesof the Company calculated on a fully diluted basis. The shares reserved under the 2011 Plan were required to be kept at that percentage with each subsequentequity financing. No new equity awards may be granted under the 2011 Plan.On May 11, 2015, 940,112 shares were reserved for issuance under the Company’s 2014 Equity Incentive Plan (“2014 Plan”), including 14,006 shares fromthe 2011 Plan. On January 1, 2016, an additional 273,769 shares were reserved for issuance under the 2014 Plan in accordance with the automatic annualshare increase allowed for in the 2014 Plan. As of December 31, 2016, there were 96,008 shares available for issuance under the 2014 Plan.The Company’s Board of Directors determines the option exercise price and grant date for all awards granted. The exercise price of options granted isgenerally equal to the estimated fair value of the Company’s common stock on the date of grant. All options granted have a ten-year term. The vesting periodof options and RSUs is established by the Board of Directors but typically ranges between two and four years.F-29The following table summarizes stock option activity during the two-year period ended December 31, 2016: Number ofShares Weighted-AverageExercise PricePer Share Weighted-AverageRemainingContractualLife (Years) AggregateIntrinsic Value Balance at January 1, 2015 595,577 $3.71 7.8 $- Granted 171,408 6.11 Exercised (13,960) 2.5 $86,070 Forfeited (16,380) 8.57 Balance at December 31, 2015 736,645 $4.18 7.5 $947,794 Granted 563,400 2.46 Exercised (11,093) 2.15 $2,126 Forfeited (70,754) 4.60 Expired/Cancelled (56,493) 3.97 Balance at December 31, 2016 1,161,705 $3.35 7.7 $36,887 Vested and expected to vest at December31, 2016 1,087,266 $3.36 7.6 $36,465 Exercisable at December 31, 2015 410,649 $3.55 6.3 $641,115 Exercisable at December 31, 2016 593,670 $3.46 6.4 $28,822 The weighted-average fair value of stock options granted was $1.59 and $3.61 for the years ended December 31, 2016 and 2015, respectively. As ofDecember 31, 2016, total unrecognized compensation cost related to stock option awards was approximately $932,153, which is expected to be recognizedover approximately 2.3 years.In April 2016, in connection with the severance of an employee, the Company accelerated the vesting of 8,957 unvested stock options, as well as the periodfollowing termination whereby all of the employee’s vested stock options, including those accelerated as part of the severance agreement, could be exercisedfor a two-year period from the termination date. As a result of this modification, the Company recorded incremental stock-based compensation expense ofapproximately $13,500 for the year ended December 31, 2016. The fair value of each stock option granted has been determined using the Black-Scholes option pricing model. The material factors incorporated in theBlack-Scholes model in estimating the fair value of the options granted for the periods presented were as follows: 2016 2015Fair value of common stock $ 1.98 - 2.88 $ 4.88 - 14.64Risk-free interest rate 1.13% - 2.08% 1.36% - 2.22%Expected volatility 59.9% - 93.7% 60.5% - 75.0%Expected term 4.8 to 6.2 years 5.0 to 10 yearsExpected dividend yield —% —% •Expected stock-price volatility. The expected volatility assumption is derived from the volatility of the Company’s common stock in recentperiods, as well as that of publicly traded industry competitors, over a period approximately equal to the expected term. •Risk-free interest rate. The risk-free interest rate assumption is based on observed interest rates on the date of grant with maturities approximatelyequal to the expected term. •Expected term. The expected term represents the period that the stock-based awards are expected to be outstanding. The Company’s historicalshare option exercise experience does not provide a reasonable basis upon which to estimate an expected term because of a lack of sufficient data.Therefore, the Company estimates the expected term by using the simplified method provided by the SEC. The simplified method calculates theexpected term as the average of the time-to-vesting and the contractual life of the options. •Expected dividend yield. The expected dividend is assumed to be zero as the Company has never paid dividends and does not anticipate payingany dividends on its common stock.In addition to the assumptions used in the Black-Scholes option-pricing model, the Company also estimates a forfeiture rate to calculate the stock-basedcompensation for the Company’s stock option awards. The Company will continue to use judgment inF-30evaluating the expected volatility, expected terms and forfeiture rates utilized for the Company’s stock-based compensation calculations on a prospectivebasis.The following table summarizes RSU award activity during the two-year period ended December 31, 2016: RestrictedStock Units(RSU) Weighted-AverageGrant DateFair ValuePer Share Balance at January 1, 2015 $— $— Granted 27,500 5.45 Vested — — Forfeited — — Balance at December 31, 2015 27,500 $5.45 Granted 389,761 2.43 Vested (36,762) 2.90 Forfeited (25,000) 2.46 Balance at December 31, 2016 355,499 $2.41 Vested and expected to vest at December 31, 2016 342,879 $2.42 The weighted-average fair value of RSUs granted was $2.43 and $5.45 for the years ended December 31, 2016 and 2015, respectively. As of December 31,2016, total unrecognized compensation cost related to RSU awards was approximately $549,744, which is expected to be recognized over approximately 9-months, primarily relating to 353,000 RSUs granted in 2016 that vest 50% on February 27, 2017 and 50% on August 28, 2017, and will be issued upongrantee satisfaction of minimum statutory employee tax withholding liabilities relating to these vested shares.Stock Purchase PlanIn December 2015, the Board of Directors adopted a Stock Purchase Plan (the “Purchase Plan”) which allows directors, any individual deemed by the Boardof Directors to be an officer for purposes of Section 16 of the Exchange Act, and anyone designated by the Board of Directors as eligible to participate in thePurchase Plan to purchase shares of the Company’s common stock from the Company at fair market value. The aggregate number of shares of common stockthat may be issued under the Purchase Plan shall not exceed 250,000 shares of common stock, and a maximum of 7,500 shares of common stock may bepurchased by any one participant on any one purchase date. The Board of Directors or an authorized committee must review and approve each individualrequest to purchase common stock under the Purchase Plan. No common stock was sold by the Company under the Purchase Plan for the year endedDecember 31, 2016. Cash received from the sale of common stock by the Company to eligible participants for the year ended December 31, 2015 was$20,000 which resulted in the sale of 4,184 shares of the Company’s common stock at fair market value. 2014 Employee Stock Purchase PlanIn April 2015, the Company’s stockholders approved the 2014 Employee Stock Purchase Plan, which became effective in May 2015. Initially, the ESPPauthorized the issuance of up to 110,820 shares of common stock pursuant to purchase rights granted to the Company’s employees or to employees of any ofthe Company’s designated affiliates. The number of shares of common stock reserved for issuance automatically increases on January 1 of each calendar year,from January 1, 2016 to January 1, 2024 by the least of (i) 1% of the total number of shares of the Company’s common stock outstanding on December 31 ofthe preceding calendar year, (ii) 195,000 shares, or (iii) a number determined by the Company’s board of directors that is less than (i) and (ii). The ESPPenables participants to contribute up to 15% of such participant’s eligible compensation during a defined period (not to exceed 27 months) to purchasecommon stock of the Company. The purchase price of common stock under the ESPP is the lesser of: (i) 85% of the fair market value of a share of theCompany’s common stock on the first day of an offering or (ii) 85% of the fair market value of the Company’s common stock at the applicable purchase date.During the year ended December 31, 2016, employees purchased 39,984 shares at $1.83 per share and 39,978 shares at $2.54 per share at the end of each ofthe 6-month purchase periods that occurred under the plan. As of December 31, 2016, approximately 99,300 shares of the Company’s common stock werereserved for future issuance under the ESPP. The first offering under the ESPP began January 1, 2016. As such, no shares of common stock were issued underthe ESPP during the year ended December 31, 2015.The Company recognizes ESPP expense based on the fair value of the ESPP stock purchase rights, estimated for each 6-month purchase period using theBlack-Scholes option pricing model. The model requires the company to make subjective assumptions,F-31including expected stock price volatility, risk free rate of return and estimated life. The fair value of equity-based awards is amortized straight-line over thevesting period of the award. Stock-based compensation expense relating to the ESPP was $98,544 and $0 for the years ended December 31, 2016 and 2015,respectively. The material factors incorporated in the Black-Scholes model in estimating the fair value of the ESPP awards for the periods presented were as follows: 2016 Fair value of common stock $ 3.03 - 4.09 Risk-free interest rate 0.41% - 0.48% Expected volatility 70.0% Expected term 0.5 years Expected dividend yield —% •Fair value of common stock. Estimated as the price of the Company’s common stock on the first day of each offering period. •Expected stock-price volatility. The expected volatility assumption is derived from the average volatility of the Company’s common stock inrecent periods, as well as that of publicly traded industry competitors, over a period approximately equal to the expected term. •Risk-free interest rate. The risk-free interest rate assumption is based on observed interest rates on the first day of the purchase period withmaturities approximately equal to the expected term. •Expected term. The expected term represents the length of a purchase period under the ESPP. •Expected dividend yield. The expected dividend is assumed to be zero as the Company has never paid dividends and does not anticipate payingany dividends on its common stock. Note 14. Commitments and ContingenciesLegal MattersThe Company’s industry is characterized by frequent claims and litigation, including claims regarding intellectual property and product liability. As a result,the Company may be subject to various legal proceedings from time to time. The results of any current or future litigation cannot be predicted with certainty,and regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources, andother factors. Any current litigation is considered immaterial and counter claims have been assessed as remote.Employment AgreementsThe Company has entered into employment agreements or other arrangements with certain named executive officers, which provides salary continuationpayments, bonuses and, in certain instances, the acceleration of the vesting of certain equity awards to individuals in the event that the individual isterminated other than for cause, as defined in the applicable agreement.Indemnification AgreementsIn the course of operating its business, the Company has entered into, and continues to enter into, separate indemnification agreements with the Company’sdirectors and executive officers, in addition to the indemnification provided for in the Company’s amended and restated bylaws. These agreements mayrequire the Company to indemnify its directors and executive officers for certain expenses incurred in any action or proceeding arising out of their services asone of the Company’s directors or executive officers.LeasesThe Company leases office and laboratory space under two non-cancelable operating leases in Tucson, Arizona. The Company amended its facilities leases inAugust 2015 to extend the terms for approximately five years and to receive lessor approval for and establish lessee oversight of leasehold improvements bythe Company (lessee) and the lessor, respectively, which improvements expanded and improved the Company’s existing research, development, operationsand administration office facilities. The lease amendments included an increase of $804,000 in total monthly rent over the remaining term of the leases. Thelandlord constructed certain of the leasehold improvements as an incentive to extend the leases. The total cost of the improvements constructed by thelandlord of $710,000 was capitalized when the construction was completed in February 2016, and is being depreciated over the remaining term of the leaseagreement. The incentive of $710,000 has been recognized as deferred rent within other current liabilitiesF-32and other liabilities on the balance sheets, and is being accreted at $11,833 per month over the lease term as a reduction of rent expense. As a result of the amendments, the Company’s annual minimum facility lease payments before common area maintenance charges as of December 31, 2016are as follows: 2017 $510,125 2018 512,533 2019 514,977 2020 517,457 2021 43,139 $2,098,231 Rent expense, including common area maintenance costs for the Company’s facilities leases was $561,293, including $130,167 of depreciation forcapitalized leasehold improvements for the year ended December 31, 2016. Rent expense, including common area maintenance costs for the Company’sfacility leases was $443,085 for the year ended December 31, 2015. As of December 31, 2016, the Company also has capital lease commitments consisting of approximately $123,500 under leases for computer equipmentvarying in length from 36-48 months and an equipment financing arrangement of approximately $28,500 with a vendor that expires in December 2017 thathave not been included in the minimum lease payments schedule above. Product WarrantyThe following is a summary of the Company’s general product warranty liability, which is included in accrued liabilities in the accompanying balance sheetsfor the year ended December 31, 2016: Years Ended December 31, 2016 2015 Beginning balance $20,213 $— Cost of warranty claims (71,404) (545)Warranty accrual 101,617 20,758 Ending balance $50,426 $20,213 Prior to the third quarter of 2015, no warranty reserves were recorded by the Company.Defined Contribution PlanIn January 2003, the Company established a defined contribution plan (“401(k) Plan”) under Internal Revenue Code section 401(k). All employees upon hirewho are over the age of 21 are eligible for participation in the 401(k) Plan. The Company may make discretionary contributions to the 401(k) Plan, but hasnot done so during the years ended December 31, 2016 and 2015. Note 15. Income TaxesThe Company provides for income taxes based upon management’s estimate of taxable income or loss for each respective period. The Company recognizesan asset or liability for the deferred tax consequences of temporary differences between the tax bases of assets and liabilities and their reported amounts in thefinancial statements. These temporary differences would result in deductible or taxable amounts in future years, when the reported amounts of the assets arerecovered or liabilities are settled, respectively.In each period since inception, the Company has recorded a valuation allowance for the full amount of its net deferred tax assets, as the realization of the netdeferred tax assets is uncertain. As a result, the Company has not recorded any federal or state income tax benefit in the statements of operations; however,state income tax expense has been recorded for state minimum taxes.The Company periodically reviews its filing positions for all open tax years in all U.S. Federal, state and international jurisdictions where the Company is ormight be required to file tax returns or other required reports.F-33The Company applies a two-step approach to recognizing and measuring uncertain tax positions. The Company evaluates the tax position for recognition bydetermining if the weight of available evidence indicates that it is “more likely than not” that the position will be sustained on audit, including resolution ofrelated appeals or litigation process, if any. The term “more likely than not” means a likelihood of more than 50 percent. If the tax position is not more likelythan not to be sustained in a court of last resort, the Company may not recognize any of the potential tax benefit associated with the position. The Companyrecognizes a benefit for a tax position that meets the more likely than not criterion at the largest amount of tax benefit that is greater than 50 percent likely ofbeing realized upon its effective resolution. Unrecognized tax benefits involve management’s judgment regarding the likelihood of the benefit beingsustained. The final resolution of uncertain tax positions could result in adjustments to recorded amounts and may affect the Company’s results of operations,financial position and cash flows. The Company has not identified any uncertain tax positions at December 31, 2016 or December 31, 2015.The Company’s policy is to recognize interest and/or penalties related to income tax matters in income tax expense. The Company had no accrual for interestor penalties at December 31, 2016 and 2015, respectively, and has not recognized interest or penalties during the years ended December 31, 2016 and 2015,respectively, since there are no material unrecognized tax benefits. Management believes no material change to the amount of unrecognized tax benefits willoccur within in the next 12 months.The components of income tax expense are as follows: Years Ended December 31, 2016 2015 Current: Federal $— $— State 10,118 10,189 Total current income tax expense $10,118 $10,189 Deferred: Federal $— $— State — — Total deferred income tax expense $— $— Total income tax expense $10,118 $10,189 The Company’s actual income tax expense for the years 2016 and 2015 differ from the expected amount computed by applying the statutory federal incometax rate of 34% to loss before income taxes as follows: Years Ended December 31, 2016 2015 Computed tax (benefit) at 34% $(8,850,007) $(7,271,785)State taxes, net of federal benefit (462,609) (918,079)Stock-based compensation 210,367 102,699 Expiring state net operating loss ("NOL") carryforwards 94,962 (20,086)Return to provision 248,263 (27,934)Other 25,718 44,679 Research and development tax credit - state (453,071) (300,213)Research and development tax credit - federal (341,785) (342,681)Change in valuation reserve 9,538,280 8,743,589 $10,118 $10,189 F-34Deferred tax assets and liabilities comprise the following: Years Ended December 31, 2016 2015 Deferred tax assets: Net operating loss carryforwards $37,114,445 $28,795,562 Research and development credits 2,132,050 1,435,314 Deferred revenue 177,683 17,396 Inventory reserve 99,583 104,182 Fixed assets and intangibles 193,833 50,128 Change in fair value of warrant liability — 111,993 Accrued NuvoGen liability 3,176,449 3,282,756 Capitalized research and development — 27,583 Accrued expense 351,505 — Other 233,438 115,792 43,478,986 33,940,706 Valuation allowance (43,478,986) (33,940,706)Deferred tax asset, net $— $— As of December 31, 2016, the Company has estimated federal and state NOL carryforwards of approximately $102,162,333 and $61,744,268 for federal andstate income tax purposes, respectively. The Company’s federal NOLs are scheduled to expire from 2021 through 2036. The Company’s state NOLs arescheduled to expire from 2027 through 2036. The Company’s federal and state tax credit carryforwards begin expiring in 2021 and 2017, respectively. TheCompany’s federal NOL carryforwards have the following expiration dates: Year of Expiration 2016 BonusAmount Federal NOL carryforwards 2021 $211,806 2023 1,635,651 2024 1,217,290 2025 1,409,498 2026 1,175,594 2027 1,676,458 2028 3,037,785 2029 3,753,314 2030 623,235 2031 5,435,312 2032 10,913,787 2033 12,095,966 2034 14,190,409 2035 21,079,240 2036 23,706,988 $102,162,333 For financial reporting purposes, valuation allowances of $43,478,986 and $33,940,706 at December 31, 2016 and 2015, respectively, have been establishedto offset deferred tax assets relating mainly to NOLs and research and development credits. The increase in the valuation allowance of $9,538,280 for the yearended December 31, 2016 was due primarily to increased operating losses. The Company has established a valuation allowance against the entire tax asset.As a result, the Company does not recognize any tax benefit until it is in a taxpaying position and, therefore, more likely than not to realize the tax benefit. Apreliminary analysis of past and subsequent equity offerings by the Company, and other transactions that have an impact on the Company’s ownershipstructure, concluded that the Company may have experienced one or more ownership changes under Sections 382 and 383 of the Internal Revenue Code orIRC. Provisions of the IRC place special limitations on the usage of net operating losses and credits following an ownership change. Such limitations maylimit or eliminate the potential future tax benefit to be realized by the Company from its accumulated NOLs and research and development credits.The Company files income tax returns in the United States, Arizona, California, Texas and various other state jurisdictions, with varying statutes oflimitations. As of December 31, 2016, the earliest year subject to examination is 2013 for US federal tax purposes.F-35The earliest year subject to examination is 2012 for Arizona, California and Texas, and 2009 for the remaining state jurisdictions. However, the Company’snet operating loss carryforwards for periods ending December 31, 2001 and thereafter remain subject to examination by the United States and certain states. Note 16. Related-Party TransactionsMerck Non-Exclusive License AgreementIn June 2012, the Company entered into a non-exclusive license agreement with Merck Sharp & Dohme Cor. (“Merck”) whereby the Company agreed tosublicense certain intellectual property related to breast cancer biomarkers with the intent to develop, manufacture and commercialize a diagnostic testutilizing this technology. Merck is an affiliate of Merck Capital Ventures, LLC, which had a 9.9% and 11.1% beneficial ownership in the Company’scommon stock as of December 31, 2016 and 2015, respectively. A member of the Company’s Board of Directors, who resigned in May 2015, was an affiliateof Merck. The Company agreed to pay Merck certain contingent milestone payments between $50,000 and $1,000,000 and future royalties of 3%-6% ofsales derived from such products developed that utilize the licensed technology. No amounts have been accrued or paid under this agreement as theCompany has not achieved any of the milestone targets or developed any products that utilize the licensed technology.QIAGEN AgreementIn November 2016, the Company entered a Master Assay Development, Commercialization and Manufacturing Agreement (“Governing Agreement”) withQIAGEN Manchester Limited (“QML”), a wholly owned subsidiary of QIAGEN N.V. The Governing Agreement creates a framework for QMS and theCompany to combine their technological and commercial strengths to offer biopharmaceutical companies a complete NGS-based solution for thedevelopment, manufacture and commercialization of companion diagnostic assays. Under the Governing Agreement, the parties will jointly seek companiondiagnostic programs with biopharmaceutical companies, QML will contract with interested biopharmaceutical companies for specified projects (each a“Project”), and QML and the Company will enter into a statement of work under the Governing Agreement, which sets forth the rights and obligations ofQML and the Company with respect to each Project.The parties’ relationship under the Governing Agreement is exclusive in the oncology field. Such exclusivity in the oncology field may be lost and becomenon-exclusive if certain performance targets are not met. Projects may be undertaken in non-oncology fields at each party’s discretion on a non-exclusivebasis. QML and the Company will share net profits under each statement of work, based on whether development of particular assays under a statement of work areprimarily based on HTG or QML intellectual property. Each statement of work will provide additional financial terms for the corresponding Project, whichterms will depend on the respective development and/or commercialization activities of the parties.The Governing Agreement will continue for a five-year term. However, either party may terminate the agreement upon (i) the other party’s uncured materialbreach, bankruptcy or insolvency, (ii) specified events affecting all statements of work, or (iii) a change of control by either party. In the event a partyterminates the Governing Agreement for its own change of control, a $2.0 million termination payment will be payable to the non-terminating party.Pursuant to a stock purchase agreement, entered concurrent with the Governing Agreement, QIAGEN North American Holdings, Inc. (“QNAH”), anotherwholly owned subsidiary of QIAGEN N.V., purchased 833,333 shares of the Company’s common stock on November 17, 2016 at $2.40 per share, for a totalpurchase price of $2.0 million. QNAH agreed to purchase up to an additional $2.0 million of the Company’s common stock (subject to any applicablelimitations under the rules of the NASDAQ Stock Market) upon the sale by the Company of at least $12.0 million of common or preferred stock in a financingtransaction that occurs prior to May 16, 2017, or such other mutually agreeable date (a “Qualified Financing”). The price per share payable by QNAH in asecond tranche closing will be equal to the price per share at which shares are sold in a Qualified Financing.The purchase price for the shares of common stock purchased by QNAH in the first tranche closing reflected the parties’ agreement as to the fair market valueof the shares. However, the portion of the purchase price per share that exceeded the most recently reported closing price of the Company’s common stock, or$175,000 in the aggregate, was attributed to the Governing Agreement and recorded as deferred revenue. This deferred revenue is being recognized on astraight-line basis over the Governing Agreement’s five-year term. For the year ended December 31, 2016, the Company recognized $4,375 of thisconsideration as revenue. The price QNAH will pay for the shares of the Company’s common stock to be purchased in the second tranche closing, if any, willbe determined by the price paid by the other investors in the Qualified Financing, and, as such, is expected to represent fair value. Therefore, no value hasbeen given to this financial instrument in the Company’s financial statements as of December 31, 2016. F-36Note 17. Subsequent Events Notice of Potential Delisting from The NASDAQ Global MarketThe Company’s common stock is currently listed on The NASDAQ Global Market under the symbol “HTGM.” On August 15, 2016, the Company receivednotice from NASDAQ that its stockholders’ equity as reported in our Quarterly Report on Form 10-Q for the quarter ended June 30, 2016 did not satisfy TheNASDAQ Global Market continued listing requirements. Following the Company’s submission to NASDAQ of a plan to regain compliance with thestockholders’ equity requirements in September 2016, NASDAQ granted the Company an extension until February 13, 2017 to regain compliance with thestockholders’ equity requirement. On February 14, 2017, the Company received a letter (the “Delisting Notice”) from NASDAQ stating that the Company didnot regain compliance with the stockholders’ equity requirement and that, as a result, its common stock would be removed from listing unless it requested onappeal to a NASDAQ Hearings Panel. On February 21, 2017, the Company appealed the delisting determination to a NASDAQ Hearings Panel (the “Panel”),pursuant to the procedures set forth in the NASDAQ Listing Rule 5800 series. The hearing request will stay any delisting action in connection with theDelisting Notice and allow the continued listing of the Company’s common stock on The NASDAQ Global Market until the Panel renders a decision. Ahearing before the Panel has been scheduled for March 30, 2017. F-37 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.None.Item 9A. Controls and Procedures.Evaluation of Disclosure Controls and Procedures.We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our periodic and currentreports that we file with the SEC is recorded, processed, summarized and reported with the time periods specified in the SEC’s rules and forms, and that suchinformation is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, toallow timely decisions regarding required disclosure.In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how welldesigned and operated, can provide only reasonable and not absolute assurance of achieving the desired control objectives. In reaching a reasonable level ofassurance, management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. In addition, thedesign of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that anydesign will succeed in achieving its stated goals under all potential future conditions; over time, control may become inadequate because of changes inconditions, or the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system,misstatements due to error or fraud may occur and not be detected.As of December 31, 2016, we carried out an evaluation, under the supervision and with the participation of our management, including our ChiefExecutive Officer and our Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as defined inRules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended. Based on that evaluation, our Chief Executive Officer and our ChiefFinancial Officer have concluded that, as of the end of the period covered by this annual report, our disclosure controls and procedures were effective at thereasonable assurance level.Management’s Report on Internal Control over Financial Reporting.Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined inExchange Act Rules 13a-15(f). Internal control over financial reporting is a process designed under the supervision and with the participation of ourmanagement, including our Chief Executive Officer and Chief Financial Officer, to provide reasonable assurance regarding the reliability of financialreporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United Statesof America. The effectiveness of any system of internal control over financial reporting, including ours, is subject to inherent limitations, including theexercise of judgment in designing, implementing, operating and evaluating the controls and procedures, and the inability to eliminate misconductcompletely. Accordingly, any system of internal control over financial reporting, including ours, no matter how well designed and operated, can only providereasonable, not absolute assurances. In addition, projections of any evaluation of effectiveness to future periods are subject to the risk that controls maybecome inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Therefore, even thosesystems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.We conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control –Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework). Based on our evaluation of theframework in Internal Control – Integrated Framework, our management concluded that our internal control over financial reporting was effective as ofDecember 31, 2016.Changes in Internal Control Over Financial ReportingAn evaluation was performed under the supervision and with the participation of our management, including our Chief Executive Officer and ChiefFinancial Officer, of any change in our internal control over financial reporting that occurred during our last fiscal quarter and that has materially affected, oris reasonably likely to materially affect, our internal control over financial reporting. That evaluation did not identify any change in our internal control overfinancial reporting that occurred during our latest fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal controlover financial reporting.Item 9B. Other Information.None. 116 PART III Item 10. Directors, Executive Officers and Corporate Governance.Executive Officers and DirectorsThe following table sets forth certain information regarding our current executive officers and directors: Name Age Position(s)Executive Officers Timothy B. Johnson 55 President and Chief Executive Officer and DirectorJohn L. Lubniewski 53 Chief Business OfficerPatrick C. Roche, Ph.D. 64 Senior Vice President for Research and DevelopmentShaun D. McMeans 55 Vice President of Finance & Administration and Chief Financial OfficerDebra A. Gordon, Ph.D., J.D. 57 Vice President and Chief Legal Counsel Non-Employee Directors Ann F. Hanham, Ph.D. (3) 64 Chair of the Board of DirectorsHarry A. George (1) 68 DirectorDonnie B. Hardison (2) 66 DirectorJames T. LaFrance (1)(3) 58 DirectorLee McCracken (2)(3) 59 DirectorLewis J. Shuster (1) 61 Director (1)Member of the audit committee.(2)Member of the compensation committee.(3)Member of the nominating and governance committee.Executive OfficersTimothy (TJ) B. Johnson. Mr. Johnson has served as our President and Chief Executive Officer and as a member of our board of directors since January2008. Mr. Johnson joined us from LVC Consulting, a consulting company, where he was a partner from April 2007 to January 2008. Prior to April 2007,Mr. Johnson spent five years in leadership roles at Ventana Medical Systems, Inc. or Ventana, a medical diagnostics company, prior to its acquisition byRoche Holdings, Inc., or Roche. At Ventana, Mr. Johnson held the positions of Senior Vice President, Global Business Services, Senior Vice President,Corporate Development and Operations, and Vice President/General Manager, Operations and Lean Systems. In these roles, Mr. Johnson’s responsibilitiesincluded product technical support, worldwide marketing, corporate development, strategic planning and manufacturing. Prior to working at Ventana,Mr. Johnson had a 12-year career at Hillenbrand Industries, Inc., a global diversified industrial company, where he held several leadership roles in thecorporate offices and in the Hill-Rom Division, including Vice President, Global Marketing, Vice President/General Manager, Hill-Rom AirShields, VicePresident, Operations, and Vice President, Continuous Improvement and Strategic Planning. Mr. Johnson spent part of his early career atPricewaterhouseCoopers LLP, a public accounting firm. Mr. Johnson previously served on the board of directors of Kalypto Medical, Inc. and was theIndustry co-chair for the Biosciences Leadership Council of Southern Arizona. He earned a B.S. in Business from Indiana University. Our board of directorsbelieves that Mr. Johnson’s extensive executive background in general management, strategic planning and managing operations of a diagnostic companyand service as our President and Chief Executive Officer qualify him to serve on our board of directors.John L. Lubniewski. Mr. Lubniewski has served as our Chief Business Officer since April 2011. Mr. Lubniewski joined us from Ventana, a medicaldiagnostics company and member of the Roche Group and global headquarters of Roche Tissue Diagnostics, or RTD, where he served in leadership roles fornine years both before and after the acquisition of Ventana by Roche in March 2008. From August 2010 to April 2011, Mr. Lubniewski was Senior VicePresident and Lifecycle Leader, Advanced Staining Platforms at Ventana. From January 2008 to August 2010, Mr. Lubniewski served as Senior VicePresident and Lifecycle Leader, Clinical Assays at RTD, with responsibility for three lifecycle teams, technical marketing and medical marketing and globalaccountability for all RTD clinical assay products. Prior to the Roche acquisition of Ventana, Mr. Lubniewski served at Ventana as Senior Vice President,Advanced Staining Business Unit, Vice President Worldwide Marketing and Translational Diagnostic Business Unit, and General Manager, ResearchProducts. In these roles, Mr. Lubniewski was responsible for a variety of assay and platform development and commercialization efforts. Prior to Ventana,Mr. Lubniewski worked for over ten years at Corning, Inc., a manufacturing company, in a variety of divisional, sector and corporate sales and marketingroles. Mr. Lubniewski earned a B.S. in Chemical Engineering from Clarkson University.117 Patrick (Pat) C. Roche, Ph.D. Dr. Roche has served as our Senior Vice President for Research and Product Development since April 2014. Dr. Rochejoined us from Ventana, a medical diagnostics company and member of the Roche Group and global headquarters of RTD, where he worked for 12 years andheld a number of positions of increasing responsibility, including Vice President, Head Biomarker Strategy, Translational Diagnostics, from August 2009 toApril 2014, and Vice President, Assay Development and Clinical Studies, from March 2007 to July 2009. In these roles, Dr. Roche was responsible forinterfacing with biopharmaceutical partners in their development of targeted cancer therapeutics and facilitating the transition of biomarkers into companiondiagnostics and for leading reagent product development and launching over 30 in vitro diagnostic products, including the FDA-approved c-kit and HER2tests. Prior to working at Ventana, Dr. Roche was at the Mayo Clinic Rochester, a medical research group, where he served as Director of theImmunohistochemistry Laboratory and as Associate Professor of Laboratory Medicine and Pathology. Dr. Roche has co-authored more than 125 peer-reviewed publications and is an inventor on a number of patent filings and two issued U.S. patents. Dr. Roche received a B.S. in Biological Sciences from theUniversity of Southern California, and a Ph.D. in Experimental Pathology from the University of Southern California, School of Medicine.Shaun D. McMeans. Mr. McMeans has served as our Vice President of Finance & Administration and Chief Financial Officer since February 2012.Prior to joining us, Mr. McMeans was Vice President – Finance of Securaplane Technologies, Inc., a product supply company and division of Meggitt PLC,an aerospace, defense and energy conglomerate, from May 2011 to February 2012. Mr. McMeans was a financial consultant from February 2008 to April2011, working both in an individual capacity and as a partner for Tatum LLC, a consulting company. Prior to February 2008, Mr. McMeans was ChiefFinancial Officer for The Long Companies, a full service residential and commercial real estate division of Berkshire Hathaway, Inc. Mr. McMeans alsoworked for over five years at LXU Healthcare, Inc., a manufacturer and distributor of specialty surgical equipment, as Controller and then Chief Financial andOperating Officer. In his early career, Mr. McMeans worked in roles of increasing responsibility, including Director of Finance, for Burnham Holdings, Inc.,formerly Burnham Corporation, a manufacturer and distributor of residential and commercial hydronic heating equipment. Mr. McMeans received his B.S. inAccounting from The Pennsylvania State University.Debra (Deb) A. Gordon, Ph.D., J.D. Dr. Gordon has served as our Vice President and Chief Legal Counsel since June 2011. Prior to joining us,Dr. Gordon was General Counsel and Head, Patent Legal at Ventana, a medical diagnostics company and a member of the Roche Group and the globalheadquarters for RTD, from October 2008 to June 2011. Dr. Gordon was promoted to leadership of the Ventana legal function after serving at Ventana fromFebruary 2007 as a patent attorney supporting the assay development functions. For nearly ten years preceding Dr. Gordon’s in-house legal experiences,Dr. Gordon practiced as a business transactional attorney at the law firms Lewis and Roca LLP (now, Lewis Roca Rothgerber Christie LLP) and Perkins CoieLLP, and as an intellectual property attorney at the law firm Klarquist Sparkman LLP. Prior to law school, Dr. Gordon completed post-doctoral fellowships atBrandeis University and the University of Arizona. Dr. Gordon is an author on 13 peer-reviewed scientific publications and an inventor on two patent filings.Dr. Gordon received a B.S. in Biology and Chemistry and a M.S. in Chemistry from Western Washington University, a Ph.D. in Physiology from theUniversity of Arizona, College of Medicine, and a J.D. with honors from the University of Arizona, James E. Rogers College of Law.Non-Employee DirectorsAnn F. Hanham Ph.D. Dr. Hanham has served on our board of directors since August 2016, and as the chair of our board of directors since March 2017.Since March 2017, Dr. Hanham has provided independent management consulting as a sole proprietor. Previously, she was the founding and managingpartner of BAR Capital LLC, an investment company, a position she has held from December 2013 to March 2017. From February 2000 to November 2013,Dr. Hanham was the Managing Director and General Partner of Burrill and Company, a life science investment company. Prior to that, Dr. Hanham heldpositions of increasing responsibility in product development, medical affairs, and clinical and regulatory affairs at various companies, including InterMuneInc., Otsuka America Pharmaceuticals, Inc., or Otsuka, Celtrix Pharmaceuticals, Inc., or Celtrix, and Becton Dickinson and Company, or BD. InterMune,Otsuka and Celtrix are, or prior to respective acquisitions, were clinical-stage biopharmaceutical companies, and BD is a life sciences discovery anddiagnostics company. Dr. Hanham currently serves on the board of directors of Endocyte, Inc. (NASDAQ: ECYT) and SCYNEXIS (NASDAQ: SCYX). Dr.Hanham received her B.Sc. degree from the University of Toronto, Canada; her M.Sc. degree, in biology, from Simon Fraser University, Canada; and her Ph.D.degree, in biology, from the University of British Columbia, Canada. Our board of directors believes that Ms. Hanham’s extensive industry and executiveexperience, and her experience serving on the board of directors of other public companies qualifies her to serve as the chair of our board of directors. Harry A. George. Mr. George has served on our board of directors since 2002 and served as the chair of our board of directors from December 2007until September 2013. Mr. George co-founded Solstice Capital, a venture capital firm, in 1995 and serves as its managing general partner. Mr. George hasserved as a member of the board of directors of a number of private and public companies and is currently serving on the boards of directors of Calimmune,Inc., Tempronics, Inc., Medipacs, Inc., Post.Bid.Ship, Inc., AdiCyte, Inc. and Sharklet. Mr. George is an advisor to Tech Launch Arizona and a board memberof the University Venture Fund, Catapult. Additionally, Mr. George is a member of the Southern Arizona Leadership Council and serves on its board ofdirectors and has also118 served on the boards of directors of Bio5 Institute, the Arizona-Sonora Desert Museum, the Tucson Museum of Art, and the Pima County Bond AdvisoryCommittee. Prior to 1995, Mr. George was co-founder, Director, and Vice-President of Finance for Interleaf Inc., a software products company. Prior to histime at Interleaf, Mr. George was co-founder, Director and Vice President of Finance of Kurzweil Computer Products, Inc., a computer products company,which subsequently was purchased by Xerox Imaging Systems. Mr. George received an A.B. from Bowdoin College and, in 2012, received an HonoraryDoctorate of Science from the University of Arizona. Also in 2012, the Arizona BioIndustry Association conferred upon Mr. George the John McGarrityBioscience Leader of the Year Award. Our board of directors believes Mr. George’s detailed knowledge of our company and long tenure with us, togetherwith his more than 40 years of experience serving as founder, operating officer, or investor with successful rapid growth technology-related companiesqualify him to serve on our board of directors.Donnie M. Hardison. Mr. Hardison has served on our board of directors since May 2016. In April 2016, he founded and serves as the sole proprietor ofDMH Consulting, a management consulting firm. Between April 2010 and March 2016, Mr. Hardison was the President and Chief Executive Officer of GoodStart Genetics, a medical device company. For more than 20 years prior to that, Mr. Hardison held a number of executive and senior management positions atcompanies including Laboratory Corporation of America, or LabCorp, a clinical laboratory company, Exact Sciences Corporation, a molecular diagnosticscompany, OnTarget, Inc., a sales and marketing consulting company, Quest Diagnostics Inc., a clinical laboratory company, SmithKline BeechamCorporation, a pharmaceutical company, and others. He currently serves on the board of directors of Seventh Sense Biosystems, a privately held medicaltechnology company, and has served on the board of directors of several other private companies, including Good Start Genetics. He also served on the boardof directors of Exact Science Corporation (NASDAQ: EXAS) from May 2000, through its initial public offering in February 2001, until August 2007. Mr.Hardison received his Bachelor of Arts degree, in political science, from the University of North Carolina, Chapel Hill. Our board of directors believes thatMr. Hardison’s broad private and public company background, his extensive executive and industry experience, his experience with newly emerging andwell-established companies, and his extensive commercial and operational experience qualify him to serve on our Board of Directors.James (Jim) T. LaFrance. Mr. LaFrance has served on our board of directors since December 2015. Mr. LaFrance has almost thirty years of diagnosticindustry experience working since January 2015 as a sales, marketing, strategy development and commercial operational management consultant forLaFrance Consulting LLC, a firm he founded. He served as interim Chief Executive Officer of Vermillion, Inc. (NASDAQ: VRML), a bioanalytics serviceprovider, from April 2014 to December 2014, where he also has served as chairman of the board of directors since December 2013. From November 2013 toMarch 2014, he served as a consultant in the medical diagnostics sector for his firm, LaFrance Consulting LLC. Prior to that, he was head of digital pathologyand Chief Executive Officer of Omnyx, LLC for GE Healthcare from January 2012 to October 2013. From August 2009 to December 2011, he further servedas a consultant in the medical diagnostics for LaFrance Consulting LLC. For eight years earlier in his career, Mr. LaFrance held a series of commercial,strategic marketing and business development leadership roles at Ventana Medical Systems (now Roche Tissue Diagnostics), or Ventana, including generalmanagement of the North American and international commercial operations. Prior to working for Ventana, Mr. LaFrance served in leadership roles instrategic marketing and business development at Bayer Diagnostics. He earned a Bachelor of Arts degree in Economics from the University of Connecticutand holds a Master’s in Business Administration from the University of Notre Dame. Our board of directors believes that Mr. LaFrance’s extensive industryand executive experience, and his experience serving on the board of directors of another public company qualify him to serve on our board of directors.Lee McCracken. Mr. McCracken has served on our board of directors since October 2015. Mr. McCracken currently is Chairman of Global Medicaland Research Technologies, a company focused on solutions for organ transplantation and regenerative medicine therapies, a position he has held since May2016. From April 2014 to May 2016, Mr. McCracken was Chief Executive Officer of Gensignia Life Sciences, Inc. Prior to that, from April 2013 to March2014, he served as a strategic and restructuring consultant in the regenerative medicine and diagnostic sectors in his firm, McCracken Consulting. FromOctober 2012 to March 2013, Mr. McCracken served as the President and Chief Executive Officer of Pathwork Diagnostics, Inc., a molecular diagnosticscompany. From January 2012 to September 2012, he was a strategic consultant in the molecular diagnostics sector in his firm, McCracken Consulting.Beginning in 2004 through December 2011, he was the Corporate Head of Business Development and a consultant for Prometheus Laboratories Inc., apharmaceutical and medical diagnostics company. Earlier in his career, Mr. McCracken held a number of executive positions or roles with significantresponsibility at several biotechnology and therapeutics companies, including GenStar Therapeutics Corporation, CombiChem Inc., and Allergan Inc., aswell as at the investment companies, 3i Capital and Union Venture. Mr. McCracken received his M.B.A. from the Anderson School of Management at theUniversity of California, Los Angeles, his Master of Computer Science (MCS) from the University of Dayton, and his B.S. in Commerce from Santa ClaraUniversity. He currently serves as a director of several private companies including Global Medical and Research Technologies, Inc. Our board of directorsbelieves Mr. McCracken’s extensive executive and industry experience and his broad knowledge of molecular diagnostics qualify him to serve on our boardof directors.Lewis (Lew) J. Shuster. Mr. Shuster has served on our board of directors since March 2014. In 2002, Mr. Shuster founded Shuster Capital, a strategicand operating advisor to and angel investor in life science companies, and has served as its chief executive119 officer since that time. From June 2003 to November 2007, Mr. Shuster served as chief executive officer of Kemia, Inc., a drug discovery and developmentcompany. From February 2000 to December 2001, Mr. Shuster held various operating executive positions at Invitrogen Corporation, a biotechnologycompany that merged with Applied Biosystems Inc. and became Life Technologies Corporation. Between 1994 and 1999, Mr. Shuster served as chieffinancial officer and other executive positions at Pharmacopeia, Inc., a drug discovery product and service company. Mr. Shuster joined Human GenomeSciences, Inc. as its first employee in September 1992 and served as its executive vice president, operations and finance until 1994. From June 2011 untilDecember 2016, Mr. Shuster served as a member of the board of directors of Response Biomedical Corporation. From April 2010 to March 2013, Mr. Shusterserved as a director of Complete Genomics, Inc., a life science company, and, from April 2011 to March 2016, as a director of Mast Therapeutics, Inc., abiopharmaceutical company. Mr. Shuster received a B.A. in Economics from Swarthmore College and an M.B.A. from Stanford University. Our board ofdirectors believes that Mr. Shuster’s extensive executive background in strategic planning and managing rapid operations growth for multiple public andprivate life science companies qualify him to serve on our board of directors.Board CompositionOur business and affairs are organized under the direction of our board of directors, which consists of eight members as of December 31, 2016. Theprimary responsibilities of our board of directors are to provide oversight, strategic guidance, counseling and direction to our management. Our board ofdirectors meets on a regular basis and additionally as required.Our board of directors has determined that all of our directors other than Mr. Johnson are independent directors, as defined by Rule 5605(a)(2) of theNASDAQ Listing Rules. The NASDAQ independence definition includes a series of objective tests, including that the director is not, and has not been for atleast three years, one of our employees and that neither the director nor any of his family members has engaged in various types of business dealings with us.In addition, as required by NASDAQ rules, our board of directors has made a subjective determination as to each independent director that no relationshipsexist, which, in the opinion of our board of directors, would interfere with the exercise of independent judgment in carrying out the responsibilities of adirector. In making these determinations, our board of directors reviewed and discussed information provided by the directors and us with regard to eachdirector’s business and personal activities and relationships as they may relate to us and our management. There are no family relationships among any of ourdirectors or executive officers.In accordance with the terms of our amended and restated certificate of incorporation, our board of directors is divided into three classes, as follows: •Class I, which consists of Mr. McCracken and Mr. LaFrance, whose terms will expire at our annual meeting of stockholders to be held in 2019; •Class II, which consists of Mr. George and Mr. Hardison, whose terms will expire at our annual meeting of stockholders to be held in 2017; and •Class III, which consists of Mr. Johnson, Mr. Shuster and Dr. Hanham, whose terms will expire at our annual meeting of stockholders to be heldin 2018.At each annual meeting of stockholders, the successors to directors whose terms then expire will serve until the third annual meeting following theirelection and until their successors are duly elected and qualified. The authorized number of directors may be changed only by resolution of our board ofdirectors. Any additional directorships resulting from an increase in the number of directors will be distributed between the three classes so that, as nearly aspossible, each class will consist of one-third of the directors. This classification of the board of directors may have the effect of delaying or preventingchanges in our control or management. Our directors may be removed for cause by the affirmative vote of the holders of at least 66 2/3% of our voting stock.Board Leadership StructureOur board of directors is currently chaired by Dr. Hanham. As a general policy, our board of directors believes that separation of the positions of chairand Chief Executive Officer reinforces the independence of the board of directors from management, creates an environment that encourages objectiveoversight of management’s performance and enhances the effectiveness of the board of directors as a whole. As such, Mr. Johnson serves as the President andChief Executive Officer while Dr. Hanham serves as the chair of our board of directors but is not an officer. We expect the positions of chair of the board ofdirectors and Chief Executive Officer to continue to be held by two individuals in the future.120 Role of the Board in Risk OversightOne of the key functions of our board of directors is informed oversight of our risk management process. The board of directors does not have astanding risk management committee, but rather administers this oversight function directly through the board of directors as a whole, as well as throughvarious standing committees of our board of directors that address risks inherent in their respective areas of oversight. The risk oversight process includesreceiving regular reports from board committees and members of senior management to enable our board to understand our risk identification, riskmanagement and risk mitigation strategies with respect to areas of potential material risk, including operations, finance, legal, regulatory, strategic andreputational risk. In particular, our board of directors is responsible for monitoring and assessing strategic risk exposure and our audit committee has theresponsibility to consider and discuss our major financial risk exposures and the steps our management has taken to monitor and control these exposures,including guidelines and policies to govern the process by which risk assessment and management is undertaken. The audit committee also monitorscompliance with legal and regulatory requirements. Oversight by the audit committee includes direct communication with our external auditors. Ournominating and governance committee monitors the effectiveness of our corporate governance practices, including whether they are successful in preventingillegal or improper liability-creating conduct. Our compensation committee assesses and monitors whether any of our compensation policies and programshas the potential to encourage excessive risk-taking.Board CommitteesOur board of directors has established an audit committee, a compensation committee and a nominating and governance committee.Audit CommitteeOur audit committee consists of Mr. Shuster, Mr. George and Mr. LaFrance. Mr. Shuster serves as the chair of our audit committee. Our board ofdirectors has determined that each of the members of our audit committee satisfies the NASDAQ Stock Market and SEC independence requirements. Thefunctions of this committee include, among other things: •evaluating the performance, independence and qualifications of our independent auditors and determining whether to retain our existingindependent auditors or engage new independent auditors; •reviewing and approving the engagement of our independent auditors to perform audit services and any permissible non-audit services; •monitoring the rotation of partners of our independent auditors on our engagement team as required by law; •prior to engagement of any independent auditor, and at least annually thereafter, reviewing relationships that may reasonably be thought tobear on their independence, and assessing and otherwise taking the appropriate action to oversee the independence of our independent auditor; •reviewing our annual and quarterly financial statements and reports, including the disclosures contained under the caption “Management’sDiscussion and Analysis of Financial Condition and Results of Operations,” and discussing the statements and reports with our independentauditors and management; •reviewing with our independent auditors and management significant issues that arise regarding accounting principles and financial statementpresentation and matters concerning the scope, adequacy and effectiveness of our financial controls; •reviewing with management and our auditors any earnings announcements and other public announcements regarding material developments; •establishing procedures for the receipt, retention and treatment of complaints received by us regarding financial controls, accounting orauditing matters and other matters; •preparing the report that the SEC requires in our annual proxy statement; •reviewing and providing oversight of any related-person transactions in accordance with our related person transaction policy and reviewingand monitoring compliance with legal and regulatory responsibilities, including our code of business conduct and ethics; •reviewing our major financial risk exposures, including the guidelines and policies to govern the process by which risk assessment and riskmanagement is implemented;121 •reviewing on a periodic basis our investment policy; and •reviewing and evaluating on an annual basis the performance of the audit committee, including compliance of the audit committee with itscharter.Our board of directors has determined that each member of the audit committee meets the requirements for financial literacy under the applicable rulesand regulations of the SEC and the NASDAQ Stock Market. It has also determined that Mr. Shuster qualifies as an audit committee financial expert within themeaning of SEC regulations and meets the financial sophistication requirements of the NASDAQ Listing Rules. In making this determination, our board ofdirectors has considered Mr. Shuster’s formal education and experience in financial and executive roles. Both our independent registered public accountingfirm and management periodically meet privately with our audit committee. The audit committee operates under a written charter that satisfies the applicablestandards of the SEC and the NASDAQ Stock Market.Compensation CommitteeOur compensation committee consists of Mr. McCracken and Mr. Hardison. Mr. McCracken serves as the chair of our compensation committee. Ourboard of directors has determined that each of the members of our compensation committee is a non-employee director, as defined in Rule 16b-3 promulgatedunder the Securities Exchange Act of 1934, as amended, or Exchange Act, is an outside director, as defined pursuant to Section 162(m) of the U.S. InternalRevenue Code of 1986, as amended, or the Code, and satisfies the NASDAQ Stock Market independence requirements. None of these individuals has everbeen an executive officer or employee of ours. The functions of this committee include, among other things: •reviewing, modifying and approving (or if it deems appropriate, making recommendations to the full board of directors regarding) our overallcompensation strategy and policies; •reviewing and recommending to our board of directors the compensation and other terms of employment of our executive officers; •reviewing and recommending to our board of directors the performance goals and objectives relevant to the compensation of our executiveofficers and assessing their performance against these goals and objectives; •reviewing and approving (or if it deems it appropriate, making recommendations to the full board of directors regarding) the equity incentiveplans, compensation plans and similar programs advisable for us, as well as modifying, amending or terminating existing plans and programs; •evaluating risks associated with our compensation policies and practices and assessing whether risks arising from our compensation policiesand practices for our employees are reasonably likely to have a material adverse effect on us; •reviewing and approving (or if it deems it appropriate, making recommendations to the full board of directors regarding) the type and amountof compensation to be paid or awarded to our non-employee board members; •establishing policies for allocating between long-term and currently paid out compensation, between cash and non-cash compensation and thefactors used in deciding between the various forms of compensation; •establishing policies with respect to votes by our stockholders to approve executive compensation as required by Section 14A of the ExchangeAct and determining our recommendations regarding the frequency of advisory votes on executive compensation; •reviewing and assessing the independence of compensation consultants, legal counsel and other advisors as required by Section 10C of theExchange Act; •establishing elements of corporate performance for purposes of increasing or decreasing compensation; •administering our equity incentive plans; •establishing policies with respect to equity compensation arrangements; •reviewing regional and industry-wide compensation practices and trends to assess the competitiveness of our executive compensationprograms and evaluating the effectiveness of our compensation policy and strategy in achieving expected benefits to us; •reviewing the adequacy of its charter on a periodic basis; •reviewing with management and approving our disclosures under the caption “Compensation Discussion and Analysis” in our periodic reportsor proxy statements to be filed with the SEC, if applicable;122 •preparing the report that the SEC requires in our annual proxy statement, if applicable; and •reviewing and assessing on an annual basis the performance of the compensation committee.The compensation committee operates under a written charter that satisfies the applicable standards of the SEC and the NASDAQ Stock Market.None of our executive officers currently serves, or has served during the last completed fiscal year, on the compensation committee or board ofdirectors of any other entity that has one or more executive officers serving as a member of our board of directors or compensation committee.Nominating and Governance CommitteeDr. Hanham was appointed by our board of directors to be the chair of our nominating and governance committee in August 2016 and Mr. McCrackenand Mr. LaFrance are members of the committee. Our board of directors has determined that each of the members of this committee satisfies the NASDAQStock Market independence requirements. The functions of this committee include, among other things: •identifying, reviewing and evaluating candidates to serve on our board of directors consistent with criteria approved by our board of directors; •determining the minimum qualifications for service on our board of directors; •evaluating director performance on the board and applicable committees of the board and determining whether continued service on our boardis appropriate; •evaluating, nominating and recommending individuals for membership on our board of directors; •evaluating nominations by stockholders of candidates for election to our board of directors; •considering and assessing the independence of members of our board of directors; •developing a set of corporate governance policies and principles, including a code of business conduct and ethics, periodically reviewing andassessing these policies and principles and their application and recommending to our board of directors any changes to such policies andprinciples; •assist the chair of our board of directors or lead independent director in developing effective board of directors meeting practices andprocedures; •oversee and review the processes and procedures used by us to provide information to our board of directors and its committees; •assist the members of our compensation committee, as requested, in determining the compensation paid to non-employee directors for theirservice on our board of directors and its committees and recommend any changes considered appropriate to our full board of directors forapproval; •periodically review with our Chief Executive Officer the plans for succession to the offices of our Chief Executive Officer and other keyexecutive officers and make recommendations to our board of directors with respect to the selection of appropriate individuals to succeed thosepositions; •reviewing the adequacy of its charter on an annual basis; and •annually evaluating the performance of the nominating and governance committee.The nominating and governance committee operates under a written charter, which the nominating and governance committee reviews and evaluatesat least annually.The nominating and governance committee will consider qualified director candidates recommended by stockholders in compliance with ourprocedures and subject to applicable inquiries. The nominating and governance committee’s evaluation of candidates recommended by stockholders doesnot differ materially from its evaluation of candidates recommended from other sources. Any stockholder may recommend nominees for director by writing toDr. Ann F. Hanham, Ph.D., Chair of the Nominating and Governance Committee of the Board of Directors, HTG Molecular Diagnostics, Inc., 3430 E. GlobalLoop, Tucson, Arizona 85706, giving the name and address of the stockholder on whose behalf the submission is made, the number of Company shares thatare owned beneficially by such stockholder as of the date of the submission, the full name of the proposed candidate, a description of the proposedcandidate’s business experience for at least the previous five years, complete biographical information for the proposed123 candidate and a description of the proposed candidate’s qualifications as a director. All of these communications will be reviewed by our nominating andgovernance committee, for further review and consideration in accordance with this policy.Section 16(a) Beneficial Ownership Reporting ComplianceUnder Section 16(a) of the Exchange Act, directors, officers and beneficial owners of 10% or more of our common stock are required to file with theSEC on a timely basis initial reports of beneficial ownership and reports of changes regarding their beneficial ownership of our common stock. Officers,directors and 10% beneficial owners are required by SEC regulations to furnish us with copies of all Section 16(a) forms that they file.Based solely on our review of the copies of such forms received and the written representations from certain reporting persons, we have determinedthat no officer, director or 10% beneficial owner known to us was delinquent with respect to their reporting obligations as set forth in Section 16(a) of theExchange Act during the fiscal year ended December 31, 2016.Limitation on Liability and Indemnification of Directors and OfficersOur amended and restated certificate of incorporation and bylaws limits our directors’ and officers’ liability to the fullest extent permitted underDelaware corporate law. Delaware corporate law provides that directors of a corporation will not be personally liable for monetary damages for breach of theirfiduciary duties as directors, except for liability: •for any transaction from which the director derives an improper personal benefit; •for any act or omission not in good faith or that involves intentional misconduct or a knowing violation of law; •under Section 174 of the Delaware General Corporation Law (unlawful payment of dividends or redemption of shares); or •for any breach of a director’s duty of loyalty to the corporation or its stockholders.If the Delaware General Corporation Law is amended to authorize corporate action further eliminating or limiting the personal liability of directors orofficers, then the liability of our directors or officers shall be eliminated or limited to the fullest extent permitted by the Delaware General Corporation Law,as so amended.Delaware law and our amended and restated bylaws provide that we will, in certain situations, indemnify any person made or threatened to be made aparty to a proceeding by reason of that person’s former or present official capacity with us against judgments, penalties, fines, settlements and reasonableexpenses. Any person is also entitled, subject to certain limitations, to payment or reimbursement of reasonable expenses (including attorneys’ fees anddisbursements) in advance of the final disposition of the proceeding.In addition, we have entered, and intend to continue to enter, into separate indemnification agreements with our directors and executive officers.These agreements, among other things, require us to indemnify our directors and executive officers for certain expenses, including attorneys’ fees, judgments,fines and settlement amounts incurred by a director or executive officer in any action or proceeding arising out of their services as one of our directors orexecutive officers or as a director or executive officer of any other company or enterprise to which the person provides services at our request.We believe that these provisions in our amended and restated certificate of incorporation and amended bylaws and these indemnification agreementsare necessary to attract and retain qualified persons as directors and officers. We also maintain a directors’ and officers’ insurance policy pursuant to whichour directors and officers are insured against liability for actions taken in their capacities as directors and officers.Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers or control persons, in the opinion of theSEC, such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable. 124 Stockholder Communications with the Board of DirectorsWe have adopted a formal process by which stockholders may communicate with our board of directors or any individual director. Stockholders whowish to communicate with our board of directors or any individual director may do so by sending written communications addressed to our Secretary at 3430E. Global Loop, Tucson, Arizona, 85706. These communications will be reviewed by our Secretary, who will determine whether the communication isappropriate for presentation to our board of directors or the relevant director. The purpose of this screening is to allow our board of directors to avoid havingto consider irrelevant or inappropriate communications (such as advertisements, solicitations and hostile communications).Code of EthicsWe have adopted a Code of Business Conduct and Ethics that applies to all of our officers, directors and employees. The Code of Business Conductand Ethics is available on our website at www.htgmolecular.com. If we make any substantive amendments to the Code of Business Conduct and Ethics orgrant any waiver from a provision of the Code to any executive officer or director, we will promptly disclose the nature of the amendment or waiver on ourwebsite.Item 11. Executive Compensation.Our named executive officers for the year ended December 31, 2016, which consist of our principal executive officer and our two other most highlycompensated executive officers as of December 31, 2016, are as follows: •Timothy B. Johnson, our President and Chief Executive Officer; •John L. Lubniewski, our Chief Business Officer; and •Patrick C. Roche, Ph.D., our Senior Vice President for Research and Development.Summary Compensation Table Name and principal position Year Salary($) RestrictedStock UnitAwards($) (1) OptionAwards($) (2) Non-equityincentiveplancompensation($) (3) All OtherCompensation($) (4) Total($) Timothy B. Johnson 2016 400,000 98,400 247,800 — 328 746,528 President and Chief Executive Officer 2015 382,952 81,750 — 120,000 647 585,349 John L. Lubniewski 2016 299,614 49,200 82,600 328 431,742 Vice President and Chief Business Officer 2015 289,604 13,625 — 70,440 647 374,316 Patrick C. Roche, Ph.D. 2016 257,250 49,200 200,600 — 328 507,378 Senior Vice President of Research & Development 2015 246,500 — — 49,200 624 296,324 (1)The dollar amounts in this column represent the aggregate grant date fair value of RSU awards granted in 2016 and 2015, as applicable. For furtherdiscussion of valuation assumptions, see Note 13 “Stock-based Compensation” to our financial statements included elsewhere in this Annual Reporton Form 10-K.(2)The dollar amounts in this column represent the aggregate grant date fair value of stock option awards granted in 2016 and 2015, as applicable. Theseamounts have been computed in accordance with FASB ASC Topic 718, using the Black-Scholes option pricing model. Pursuant to SEC rules, theamounts shown exclude the impact of estimated forfeitures related to service-based vesting conditions. For a discussion of valuation assumptions, seeNote 13 “Stock-based Compensation” to our financial statements included elsewhere in this Annual Report on Form 10-K.(3)Amounts shown represent annual performance-based bonuses earned for 2015. The annual performance-based bonuses earned for 2015 were paid inthe form of fully vested shares of common stock granted under the 2014 Plan. As of the filing of this Annual Report, the determination of annualperformance-based bonuses for 2016 has been deferred. For more information, see below under “—Annual Performance-Based Bonus Opportunity.”(4)Amount shown represents premiums for life, disability and accidental death and dismemberment insurance paid by us on behalf of the namedexecutive officer.125 Annual Base SalaryThe base salary of our named executive officers is generally set forth in each officer’s employment letter agreement with us and periodically reviewedand adjusted as necessary by our board of directors, based on the recommendation of the compensation committee of our board of directors. The 2016 basesalaries for our named executive officers, which were effective in the second quarter of 2015, were $400,000, $293,500 and $252,000, for Mr. Johnson,Mr. Lubniewski and Dr. Roche, respectively. In March 2016, the base salaries for Mr. Lubniewski and Dr. Roche were increased to $300,837.50 and$258,300, respectively.Annual Performance-Based Bonus OpportunityIn addition to base salaries, our named executive officers are eligible to receive annual performance-based bonuses, which are designed to provideappropriate incentives to our executives to achieve defined annual corporate goals and to reward our executives for individual achievement towards thesegoals. The annual performance-based bonus each named executive officer is eligible to receive is generally based on the extent to which we achieve thecorporate goals that our board of directors establishes each year. At the end of the year, our board of directors reviews our performance against each corporategoal and approves the extent to which we achieved each of our corporate goals.Our board of directors will generally consider each named executive officer’s individual contributions towards reaching our annual corporate goalsbut does not typically establish specific individual goals for our named executive officers. There is no minimum bonus percentage or amount established forthe named executive officers and, thus, the bonus amounts vary from year to year based on corporate and individual performance. For 2016, Mr. Johnson waseligible to receive a target bonus of up to 50% of his base salary pursuant to the terms of his employment letter agreement described below. For 2016,Mr. Lubniewski was eligible to receive a target bonus of up to 40% of his base salary pursuant to the terms of his employment letter agreement describedbelow. For 2016, Dr. Roche was eligible to receive a target bonus of up to 40% of his base salary pursuant to the terms of his employment letter agreementdescribed below.The corporate goals established by our board of directors for 2016 were based upon commercial, research and development, and financial goals.Specific goals included increasing the number of biopharmaceutical company drug-development programs using HTG technology, product developmentmilestone achievement, including new assay development, FDA submission and Project JANUS milestones, and expansion of biopharmaceutical customerrelationships through collaboration agreements. The commercial goals were weighted at 30% towards overall corporate goal achievement, the research anddevelopment goals were weighted 20% towards overall corporate goal achievement, and the financial goals were weighted 50% towards overall corporategoal achievement. There was no minimum percentage of corporate goals that must be achieved to earn a bonus. No specific individual goals were establishedfor any of our named executive officers for 2016.In January 2017, for purposes of approving a bonus pool for non-executive officer employees, our board of directors determined that the 2016corporate goals had been achieved at an aggregate level of 47.5%. However, in view of the Company’s financial condition, the determination and payment ofbonuses for our executive officers, including our named executive officers, was deferred.Equity-Based Incentive AwardsOur equity-based incentive awards are designed to align our interests with those of our employees and consultants, including our named executiveofficers. Our board of directors or any authorized committee thereof is responsible for approving equity grants, which include to date, stock options andRSUs. Vesting of the stock option and RSU awards is tied to continuous service with us and serves as an additional retention measure. Our executivesgenerally are awarded an initial stock option grant upon commencement of employment. Additional equity awards may occur periodically to specificallyincentivize executives to achieve certain corporate goals or to reward executives for exceptional performance. As of December 31, 2016, our namedexecutive officers have been granted both stock option awards and RSUs.Prior to the initial public offering, we granted all equity awards pursuant to the 2011 Plan and the 2001 Plan. All equity awards granted since ourinitial public offering have been granted pursuant to the 2014 Plan, the terms of which are described below under “—Equity Benefit Plans.” All options aregranted with a per share exercise price equal to no less than the fair market value of a share of our common stock on the date of the grant of such award.Generally, our stock option awards vest over a four-year period subject to the holder’s continuous service to us and may be granted with an earlyexercise feature. Such early exercise feature allows the holder to exercise and receive unvested shares of our stock, so that the holder may have a greateropportunity for gains on the shares to be taxed at long-term capital gains rates rather than ordinary income rates. From time to time as our board of directorsconsiders appropriate, we may grant stock options or RSUs that vest upon achievement of performance goals.126 On August 26, 2016, our board of directors granted Mr. Johnson, Mr. Lubniewski and Dr. Roche RSUs for 40,000, 20,000, and 20,000 shares of ourcommon stock, respectively, which will vest 50% on February 28, 2017 and 50% on August 28, 2017, subject to continued service by each of theseindividuals through that date. See “—Outstanding Equity Awards at Fiscal Year-End.”Agreements with Named Executed OfficersWe have entered into letter agreements with each of our named executive officers. The letter agreements generally provide for at-will employment andset forth the named executive officer’s initial base salary, eligibility for employee benefits, in some cases, and severance benefits upon a qualifyingtermination of employment. In addition, each of our named executive officers has executed a form of our standard confidential information and inventionassignment agreement. The key terms of the letter agreements with our named executive officers are described below. Any potential payments and benefitsdue upon a qualifying termination of employment or a change in control are further described below under “– Potential Payments and Benefits uponTermination or Change in Control.”Employment Letter Agreement with Mr. Johnson. We entered into an amended and restated letter agreement with Mr. Johnson in December 2014 thatreplaced his previous letter agreement and became effective at completion of our IPO. The agreement sets forth certain agreed upon terms and conditions ofemployment. Under the amended and restated letter agreement, Mr. Johnson serves as our President and Chief Executive Officer. Mr. Johnson is entitled to anannual base salary of $400,000, is eligible to receive an annual target performance bonus of up to 50% of his base salary as determined by the board ofdirectors, and certain severance benefits, the terms of which are described below under “—Potential Payments and Benefits upon Termination or Change ofControl.” Mr. Johnson’s base salary and target bonus percentage are subject to modification from time to time in the discretion of our board of directors orany authorized committee thereof.Employment Letter Agreement Mr. Lubniewski. We entered into an amended and restated letter agreement with Mr. Lubniewski in December 2014 thatreplaced his previous letter agreement and became effective at completion of our IPO. The agreement sets forth certain agreed upon terms and conditions ofemployment. Under the amended and restated letter agreement, Mr. Lubniewski serves as our Chief Business Officer. Mr. Lubniewski was initially entitled toreceive an annual base salary of $293,500, is eligible to receive an annual target performance bonus of up to 40% of his base salary as determined by theboard of directors, and certain severance benefits, the terms of which are described below under “—Potential Payments and Benefits upon Termination orChange of Control.” Mr. Lubniewski’s base salary and target bonus percentage are subject to modification from time to time in the discretion of our board ofdirectors or any authorized committee thereof. Effective March 1, 2016, our board of directors approved an increase to Mr. Lubniewski’s annual base salary to$300,837.50.Employment Letter Agreement with Dr. Roche. We entered into an amended and restated letter agreement with Dr. Roche in December 2014 thatreplaced his previous letter agreement and became effective at completion of our IPO. The agreement sets forth certain agreed upon terms and conditions ofemployment. Under the amended and restated letter agreement, Dr. Roche serves as our Senior Vice President of Research and Development. Dr. Roche wasinitially entitled to an annual base salary of $240,000, is eligible to receive an annual target performance bonus of up to 40% of his base salary as determinedby the board of directors, and certain severance benefits, the terms of which are described below under “—Potential Payments and Benefits upon Terminationor Change of Control.” Dr. Roche’s base salary and target bonus percentage are subject to modification from time to time in the discretion of our board ofdirectors or any authorized committee thereof. Effective March 1, 2016, our board of directors approved an increase to Dr. Roche’s annual base salary to$258,300.Potential Payments and Benefits upon Termination or Change of ControlUnder the terms of our named executive officers’ amended and restated letter agreements upon the executive’s termination without “cause,” orresignation for “good reason,” each as defined below, including any such termination that occurs in connection with a change of control, each of our namedexecutive officers is eligible to receive continued base salary payments and COBRA premium payments for 12 months for Mr. Johnson and nine months forMr. Lubniewski and Dr. Roche.For purposes of the amended and restated letter agreements, “cause” generally means the occurrence of any of the following events, conditions oractions with respect to the executive: (1) conviction of any felony or crime involving fraud or dishonesty; (2) participation in any material fraud, material actof dishonesty or other material act of misconduct against us; (3) willful and habitual neglect of the executive’s duties after written notice and opportunity tocure; (4) material violation of any fiduciary duty or duty of loyalty owed to us; (5) breach of any material term of any material contract with us which has amaterial adverse effect on us; (6) knowing violation of any material company policy which has a material adverse effect on us; or (7) knowing violation ofstate or federal law in connection with the performance of the executive’s job which has a material adverse effect on us.For purposes of each of the named executive officer’s amended and restated letter agreements, “good reason” generally means the following events,conditions or actions taken by us with respect to the executive without cause and without the executive’s express127 written consent: (1) a material reduction in base salary; (2) a material reduction in the executive’s authority, duties or responsibilities; (3) a material reductionin the authority, duties or responsibilities of the supervisor to whom the executive is required to report; or (4) a relocation of the executive’s principal placeof employment to a place that increases the executive’s one-way commute by more than 50 miles.Each of our named executive officers holds stock options and RSUs under our equity incentive plans that were granted subject to our form of stockoption and RSU agreements. A description of the termination and change of control provisions in such equity incentive plans and stock options and RSUsgranted thereunder is provided below under “– Equity Benefit Plans” and the specific vesting terms of each named executive officer’s stock options andRSUs are described below under “– Outstanding Equity Awards at Fiscal Year-End.”128 Outstanding Equity Awards at Fiscal Year-EndThe following table presents information concerning equity awards held by our named executive officers as of December 31, 2016, granted under the2001 Plan, the 2011 Plan and the 2014 Plan. Option Awards Stock Awards Name GrantDate/VestingCommencementDate Number ofSecuritiesUnderlyingUnexercisedOptions (#)Exercisable Number ofSecuritiesUnderlyingUnexercisedOptions (#)Unexercisable EquityIncentivePlanAwards:Number ofSecuritiesUnderlyingUnexercisedUnearnedOptions (#) OptionExercisePrice ($) OptionExpirationDate Numberof Sharesor Unitsof StockThatHave NotVested(#) MarketValue ofShares orUnits ofStockThatHaveNotVested($) EquityIncentivePlanAwards:NumberofUnearnedShares,Units orOtherRightsThatHave NotVested(#) EquityincentivePlanAwards:MarketorPayoutValue ofUnearnedShares,Units orOtherRightsThatHave NotVested($) Timothy B. Johnson (1)1/16/2008 25,048 — — 6.44 1/16/2018 — — — — (1)10/23/2008 14,407 — — 6.44 10/23/2018 — — — — (1)3/01/2009 4,655 — — 4.30 3/01/2019 — — — — (1)3/01/2010 6,983 — — 4.30 3/01/2020 — — — — (1)4/13/2010 675 — — 4.30 4/13/2020 — — — — (1)10/21/2010 581 — — 4.30 10/21/2020 — — — — (1)1/20/2011 675 — — 4.30 1/20/2021 — — — — (1)4/26/2011 29,797 — — 2.15 4/26/2021 — — — — (1)2/01/2013 18,328 — — 2.15 2/01/2023 — — — — (2)8/06/2013 8,134 1,177 — 2.15 8/06/2023 — — — — (2)3/20/2014 32,448 10,819 — 2.15 3/19/2024 — — — — (2)12/29/2014 5,237 4,074 — 12.89 12/28/2024 — — — — (2)2/16/2016 32,812 72,188 — 2.36 2/15/2026 — — — — (3)8/26/2016 — — — — n/a 40,000 $89,600 — — John L. Lubniewski (1)4/26/2011 13,036 — — 2.15 4/26/2021 — — — — (1)3/08/2012 2,793 — — 2.15 3/08/2022 — — — — (1)2/01/2013 3,503 — — 2.15 2/01/2023 — — — — (2)8/06/2013 11,396 1,640 — 2.15 8/06/2023 — — — — (2)3/20/2014 22,356 7,462 — 2.15 3/20/2024 — — — — (2)12/29/2014 2,096 1,628 — 12.89 12/29/2024 — — — — (2)2/16/2016 10,937 24,063 — 2.36 2/15/2026 — — — — (3)8/26/2016 — — — — n/a 20,000 $44,800 — — Patrick C. Roche, Ph.D. (2)3/20/2014 9,603 4,364 — 2.15 3/20/2024 — — — — (2)12/29/2014 1,313 1,014 — 12.89 12/29/2024 — — — — (2)2/16/2016 26,562 58,438 — 2.36 2/15/2026 — — — — (3)8/26/16 — — — — n/a 20,000 $44,800 — — (1)Fully vested.(2)Options vest over four years as follows: 1/16 of the outstanding shares vest at the end of each calendar quarter over a period of approximately fouryears, subject to the individual’s continued service with us through each vesting date.(3)RSUs vest 50% on February 27, 2017 and 50% on August 28, 2017, subject to the individual’s continued service with us through each of those dates. 129 Equity Benefit Plans2014 Equity Incentive PlanOur board of directors adopted the 2014 Plan in December 2014 and our stockholders approved the 2014 Plan in April 2015. The 2014 Plan becameeffective on May 5, 2015 in connection with our initial public offering.Stock Awards. The 2014 Plan provides for the grant of incentive stock options, or ISOs, nonstatutory stock options, or NSOs, stock appreciation rights,restricted stock awards, restricted stock unit awards, performance-based stock awards, and other forms of equity compensation, or collectively, stock awards,all of which may be granted to employees, including officers, non-employee directors and consultants of us and our affiliates. Additionally, the 2014 Planprovides for the grant of performance cash awards. ISOs may be granted only to employees. All other awards may be granted to employees, including officers,and to non-employee directors and consultants.Share Reserve. Initially, the aggregate number of shares of our common stock that may be issued pursuant to stock awards under the 2014 Plan was thesum of (1) 925,616 shares, plus (2) the number of shares (not to exceed 608,819 shares) (i) reserved for issuance under our 2011 Plan at the time the 2014 Planbecame effective, and (ii) any shares subject to outstanding stock options or other stock awards that were granted under our 2011 Plan or 2001 Plan that, onor after the effective date of the 2014 Plan, are forfeited, terminate, expire or are otherwise not issued. Additionally, the number of shares of our common stockreserved for issuance under the 2014 Plan automatically increases on January 1 of each year, beginning on January 1, 2016 and continuing through andincluding January 1, 2024, by 4% of the total number of shares of our capital stock outstanding on December 31 of the preceding calendar year, or a lessernumber of shares determined by our board of directors. The maximum number of shares of our common stock that may be issued upon the exercise of ISOsunder the 2014 Plan is 1,800,000 shares.No person may be granted stock awards covering more than 200,000 shares of our common stock under the 2014 Plan during any calendar yearpursuant to stock options, stock appreciation rights and other stock awards whose value is determined by reference to an increase over an exercise or strikeprice of at least 100% of the fair market value on the date the stock award is granted. Additionally, no person may be granted in a calendar year a performancestock award covering more than 200,000 shares of our common stock or a performance cash award having a maximum value in excess of $2,000,000. Suchlimitations are designed to help assure that any deductions to which we would otherwise be entitled with respect to such awards will not be subject to the$1,000,000 limitation on the income tax deductibility of compensation paid to any covered executive officer imposed by Section 162(m) of the Code.If a stock award granted under the 2014 Plan expires or otherwise terminates without being exercised in full, or is settled in cash, the shares of ourcommon stock not acquired pursuant to the stock award again will become available for subsequent issuance under the 2014 Plan. In addition, the followingtypes of shares of our common stock under the 2014 Plan may become available for the grant of new stock awards under the 2014 Plan: (1) shares that areforfeited to or repurchased by us prior to becoming fully vested; (2) shares withheld to satisfy income or employment withholding taxes; or (3) shares used topay the exercise or purchase price of a stock award. Shares issued under the 2014 Plan may be previously unissued shares or reacquired shares bought by uson the open market. As of December 31, 2016, option awards covering an aggregate of 674,309 shares of our common stock have been granted under the2014 Plan and were outstanding and an additional 355,499 RSU awards have been granted and remain outstanding and unvested.Administration. Our board of directors, or a duly authorized committee thereof, has the authority to administer the 2014 Plan. Our board of directorsmay also delegate to one or more of our officers the authority to (1) designate employees (other than other officers) to be recipients of certain stock awards,and (2) determine the number of shares of common stock to be subject to such stock awards. Subject to the terms of the 2014 Plan, our board of directors orthe authorized committee, referred to herein as the plan administrator, determines recipients, dates of grant, the numbers and types of stock awards to begranted and the terms and conditions of the stock awards, including the period of their exercisability, vesting schedule and change of control provisionapplicable to a stock award, if any. Subject to the limitations set forth below, the plan administrator will also determine the exercise price, strike price orpurchase price of awards granted and the types of consideration to be paid for the award.The plan administrator has the authority to modify outstanding awards under the 2014 Plan. Subject to the terms of the 2014 Plan, the planadministrator has the authority to reduce the exercise, purchase or strike price of any outstanding stock award, cancel any outstanding stock award inexchange for new stock awards, cash or other consideration, or take any other action that is treated as a repricing under generally accepted accountingprinciples, with the consent of any adversely affected participant.Stock Options. ISOs and NSOs are granted pursuant to stock option agreements adopted by the plan administrator. The plan administrator determinesthe exercise price for a stock option, within the terms and conditions of the 2014 Plan, provided that the130 exercise price of a stock option generally cannot be less than 100% of the fair market value of our common stock on the date of grant. Options granted underthe 2014 Plan vest at the rate specified by the plan administrator.The plan administrator determines the term of stock options granted under the 2014 Plan, up to a maximum of ten years. Unless the terms of anoptionholder’s stock option agreement provide otherwise, if an optionholder’s service relationship with us, or any of our affiliates, ceases for any reason otherthan disability, death or cause, the optionholder may generally exercise any vested options for a period of three months following the cessation of service.The option term may be extended in the event that exercise of the option following such a termination of service is prohibited by applicable securities lawsor our insider trading policy. If an optionholder’s service relationship with us or any of our affiliates ceases due to disability or death, or an optionholder dieswithin a certain period following cessation of service, the optionholder or a beneficiary may generally exercise any vested options for a period of 12 monthsin the event of disability and 18 months in the event of death. In the event of a termination for cause, options generally terminate immediately upon thetermination of the individual for cause. In no event may an option be exercised beyond the expiration of its term.Acceptable consideration for the purchase of common stock issued upon the exercise of a stock option will be determined by the plan administratorand may include (1) cash, check, bank draft or money order, (2) a broker-assisted cashless exercise, (3) the tender of shares of our common stock previouslyowned by the optionholder, (4) a net exercise of the option if it is an NSO, and (5) other legal consideration approved by the plan administrator.Unless the plan administrator provides otherwise, options generally are not transferable except by will, the laws of descent and distribution, orpursuant to a domestic relations order. An optionholder may designate a beneficiary, however, who may exercise the option following the optionholder’sdeath.Tax Limitations on Incentive Stock Options. The aggregate fair market value, determined at the time of grant, of our common stock with respect toISOs that are exercisable for the first time by an optionholder during any calendar year under all of our stock plans may not exceed $100,000. Options orportions thereof that exceed such limit will generally be treated as NSOs. No ISO may be granted to any person who, at the time of the grant, owns or isdeemed to own stock possessing more than 10% of our total combined voting power or that of any of our affiliates unless (1) the option exercise price is atleast 110% of the fair market value of the stock subject to the option on the date of grant, and (2) the term of the ISO does not exceed five years from the dateof grant.Restricted Stock Awards. Restricted stock awards may be granted pursuant to restricted stock award agreements adopted by the plan administrator.Restricted stock awards may be granted in consideration for (1) cash, check, bank draft or money order, (2) services rendered to us or our affiliates, or (3) anyother form of legal consideration. Common stock acquired under a restricted stock award may, but need not, be subject to a share repurchase option in ourfavor in accordance with a vesting schedule to be determined by the plan administrator. A restricted stock award may be transferred only upon such terms andconditions as set by the plan administrator. Except as otherwise provided in the applicable award agreement, restricted stock awards that have not vested maybe forfeited or repurchased by us upon the participant’s cessation of continuous service for any reason.Restricted Stock Unit Awards. Restricted stock unit awards are granted pursuant to restricted stock unit award agreements adopted by the planadministrator. RSUs may be granted in consideration for any form of legal consideration. An RSU award may be settled by cash, delivery of stock, acombination of cash and stock as deemed appropriate by the plan administrator, or in any other form of consideration set forth in the restricted stock unitaward agreement. RSUs typically vest and underlying shares of common stock are delivered as outlined in the applicable RSU agreements following thegrantee’s satisfaction of minimum statutory employee tax withholding requirements, where applicable. Employee RSU agreements generally provide thatvesting is accelerated only in certain circumstances, that delivery of the underlying shares of common stock is conditioned on the grantee’s satisfying certainvesting conditions outlined in the award, and that the grantee’s employment continue with the Company through the vesting date. Additionally, dividendequivalents may be credited in respect of shares covered by an RSU award. Except as otherwise provided in the applicable award agreement, RSUs that havenot vested will be forfeited upon the participant’s cessation of continuous service for any reason.Stock Appreciation Rights. Stock appreciation rights are granted pursuant to stock appreciation grant agreements adopted by the plan administrator.The plan administrator determines the strike price for a stock appreciation right, which generally cannot be less than 100% of the fair market value of ourcommon stock on the date of grant. Upon the exercise of a stock appreciation right, we will pay the participant an amount equal to the product of (1) theexcess of the per share fair market value of our common stock on the date of exercise over the strike price, multiplied by (2) the number of shares of commonstock with respect to which the stock appreciation right is exercised. A stock appreciation right granted under the 2014 Plan vests at the rate specified in thestock appreciation right agreement as determined by the plan administrator.131 The plan administrator determines the term of stock appreciation rights granted under the 2014 Plan, up to a maximum of ten years. Unless the terms ofa participant’s stock appreciation right agreement provide otherwise, if a participant’s service relationship with us or any of our affiliates ceases for anyreason other than cause, disability or death, the participant may generally exercise any vested stock appreciation right for a period of three months followingthe cessation of service. The stock appreciation right term may be further extended in the event that exercise of the stock appreciation right following such atermination of service is prohibited by applicable securities laws. If a participant’s service relationship with us, or any of our affiliates, ceases due to disabilityor death, or a participant dies within a certain period following cessation of service, the participant or a beneficiary may generally exercise any vested stockappreciation right for a period of 12 months in the event of disability and 18 months in the event of death. In the event of a termination for cause, stockappreciation rights generally terminate immediately upon the occurrence of the event giving rise to the termination of the individual for cause. In no eventmay a stock appreciation right be exercised beyond the expiration of its term.Performance Awards. The 2014 Plan permits the grant of performance-based stock and cash awards that may qualify as performance-basedcompensation that is not subject to the $1,000,000 limitation on the income tax deductibility of compensation paid to a covered executive officer imposedby Section 162(m) of the Code. To help assure that the compensation attributable to performance-based awards will so qualify, our compensation committeecan structure such awards so that stock or cash will be issued or paid pursuant to such award only after the achievement of certain pre-established performancegoals during a designated performance period.The performance goals that may be selected include one or more of the following: (1) earnings (including earnings per share and net earnings);(2) earnings before interest, taxes and depreciation; (3) earnings before interest, taxes, depreciation and amortization; (4) earnings before interest, taxes,depreciation, amortization and legal settlements; (5) earnings before interest, taxes, depreciation, amortization, legal settlements and other income (expense);(6) earnings before interest, taxes, depreciation, amortization, legal settlements, other income (expense) and stock-based compensation; (7) earnings beforeinterest, taxes, depreciation, amortization, legal settlements, other income (expense), stock-based compensation and changes in deferred revenue; (8) earningsbefore interest, taxes, depreciation, amortization, legal settlements, other income (expense), stock-based compensation, other non-cash expenses and changesin deferred revenue; (9) total stockholder return; (10) return on equity or average stockholder’s equity; (11) return on assets, investment, or capital employed;(12) stock price; (13) margin (including gross margin); (14) income (before or after taxes); (15) operating income; (16) operating income after taxes; (17) pre-tax profit; (18) operating cash flow; (19) sales or revenue targets; (20) increases in revenue or product revenue; (21) expenses and cost reduction goals;(22) improvement in or attainment of working capital levels; (23) economic value added (or an equivalent metric); (24) market share; (25) cash flow;(26) cash flow per share; (27) cash balance; (28) cash burn; (29) cash collections; (30) share price performance; (31) debt reduction; (32) implementation orcompletion of projects or processes (including, without limitation, clinical study initiation, clinical study enrollment and dates, clinical study results,regulatory filing submissions, regulatory filing acceptances, regulatory or advisory committee interactions, regulatory approvals, and product supply);(33) stockholders’ equity; (34) capital expenditures; (35) debt levels; (36) operating profit or net operating profit; (37) workforce diversity; (38) growth of netincome or operating income; (39) billings; (40) bookings; (41) employee retention; (42) initiation of studies by specific dates; (43) budget management;(44) submission to, or approval by, a regulatory body (including, but not limited to the FDA) of an applicable filing or a product; (45) regulatory milestones;(46) progress of internal research or development programs; (47) acquisition of new customers; (48) customer retention and/or repeat order rate;(49) improvements in sample and test processing times; (50) progress of partnered programs; (51) partner satisfaction; (52) timely completion of clinicalstudies; (53) submission of 510(k)s or pre-market approvals and other regulatory achievements; (54) milestones related to samples received and/or tests orpanels run; (55) expansion of sales in additional geographies or markets; (56) research progress, including the development of programs; (57) strategicpartnerships or transactions (including in-licensing and out-licensing of intellectual property); and (58) to the extent that an award is not intended to complywith Section 162(m) of the Code, other measures of performance selected by our board of directors.The performance goals may be based on a company-wide basis, with respect to one or more business units, divisions, affiliates, or business segments,and in either absolute terms or relative to the performance of one or more comparable companies or the performance of one or more relevant indices. Unlessspecified otherwise (i) in the award agreement at the time the award is granted or (ii) in such other document setting forth the performance goals at the timethe goals are established, we will appropriately make adjustments in the method of calculating the attainment of performance goals as follows: (1) to excluderestructuring and/or other nonrecurring charges; (2) to exclude exchange rate effects; (3) to exclude the effects of changes to generally accepted accountingprinciples; (4) to exclude the effects of any statutory adjustments to corporate tax rates; (5) to exclude the effects of any “extraordinary items” as determinedunder generally accepted accounting principles; (6) to exclude the dilutive effects of acquisitions or joint ventures; (7) to assume that any business divestedby us achieved performance objectives at targeted levels during the balance of a performance period following such divestiture; (8) to exclude the effect ofany change in the outstanding shares of our common stock by reason of any stock dividend or split, stock repurchase, reorganization, recapitalization,merger, consolidation, spin-off, combination or exchange of shares or other similar corporate change, or any distributions to common stockholders other thanregular cash dividends; (9) to exclude the effects of stock-based compensation and the award of bonuses under our bonus plans; (10) to exclude costsincurred in connection with potential acquisitions or divestitures that are required to be expensed under generally132 accepted accounting principles; (11) to exclude the goodwill and intangible asset impairment charges that are required to be recorded under generallyaccepted accounting principles; (12) to exclude the effect of any other unusual, non-recurring gain or loss or other extraordinary item; and (13) to exclude theeffects of the timing of acceptance for review and/or approval of submissions to the FDA or any other regulatory body. In addition, we retain the discretion toreduce or eliminate the compensation or economic benefit due upon attainment of the performance goals and to define the manner of calculating theperformance criteria we select to use for such performance period. The performance goals may differ from participant to participant and from award to award.Other Stock Awards. The plan administrator may grant other awards based in whole or in part by reference to our common stock. The planadministrator will set the number of shares under the stock award and all other terms and conditions of such awards.Changes to Capital Structure. In the event that there is a specified type of change in our capital structure, such as a stock split or recapitalization,appropriate adjustments will be made to (1) the class and maximum number of shares reserved for issuance under the 2014 Plan, (2) the class and maximumnumber of shares by which the share reserve may increase automatically each year, (3) the class and maximum number of shares that may be issued upon theexercise of ISOs, (4) the class and maximum number of shares subject to stock awards that can be granted in a calendar year (as established under the 2014Plan pursuant to Section 162(m) of the Code) and (5) the class and number of shares and exercise price, strike price, or purchase price, if applicable, of alloutstanding stock awards.Corporate Transactions. In the event of certain specified significant corporate transactions, the plan administrator has the discretion to take any of thefollowing actions with respect to stock awards: •arrange for the assumption, continuation or substitution of a stock award by a surviving or acquiring entity or parent company; •arrange for the assignment of any reacquisition or repurchase rights held by us to the surviving or acquiring entity or parent company; •accelerate the vesting of the stock award and provide for its termination at or prior to the effective time of the corporate transaction; •arrange for the lapse of any reacquisition or repurchase right held by us; •cancel or arrange for the cancellation of the stock award in exchange for such cash consideration, if any, as our board of directors may deemappropriate; or •make a payment equal to the excess of (1) the value of the property the participant would have received upon exercise of the stock award over(2) the exercise price otherwise payable in connection with the stock award.Our plan administrator is not obligated to treat all stock awards, even those that are of the same type, in the same manner.Under the 2014 Plan, a corporate transaction is generally the consummation of (1) a sale or other disposition of all or substantially all of our assets,(2) a sale or other disposition of at least 90% of our outstanding securities, (3) a merger, consolidation or similar transaction following which we are not thesurviving corporation, or (4) a merger, consolidation or similar transaction following which we are the surviving corporation but the shares of our commonstock outstanding immediately prior to such transaction are converted or exchanged into other property by virtue of the transaction.Change of Control. The plan administrator may provide, in an individual award agreement or in any other written agreement between a participantand us that the stock award will be subject to additional acceleration of vesting and exercisability in the event of a change of control. For example, certain ofour employees may receive an award agreement that provides for vesting acceleration upon the individual’s termination without cause or resignation forgood reason (including a material reduction in the individual’s base salary, duties, responsibilities or authority, or a material relocation of the individual’sprincipal place of employment with us) in connection with a change of control. Under the 2014 Plan, a change of control is generally (1) the acquisition by aperson or entity of more than 50% of our combined voting power other than by merger, consolidation or similar transaction; (2) a consummated merger,consolidation or similar transaction immediately after which our stockholders cease to own more than 50% of the combined voting power of the survivingentity; (3) a consummated sale, lease or exclusive license or other disposition of all or substantially of our assets; or (4) our stockholders approve a plan ofour complete dissolution or liquidation or our complete dissolution or liquidation otherwise occurs.All options granted under the 2014 Plan to our named executive officers provide that vesting and exercisability of such options will be accelerated infull following a change in control if, immediately prior to or within 12 months after the effective time of such change in control, the optionholder’scontinuous service terminates due to an involuntary termination without cause or due to a voluntary termination with good reason. Several terms arespecifically defined in the 2014 Plan for purposes of this “double-trigger”133 provision; in particular, (i) “good reason” is generally defined as (1) a material reduction in the optionholder’s annual base salary, except pursuant to a salaryreduction program affecting substantially all of our employees that does not disproportionately affect the optionholder; (2) a material reduction in theoptionholder’s authority, duties or responsibilities; (3) any failure by us to continue any material benefit plan or program in which the optionholder wasparticipating immediately prior to the change in control, or any action by us that would adversely affect the optionholder’s participation in or reduce his/herbenefits under such benefit plan or program, or deprive him/her of any fringe benefit enjoyed immediately prior to the change in control, unless, taken as awhole, we provide for optionholder participation in comparable benefit plans or programs; (4) a relocation of the optionholder’s principal place ofemployment more than 50 miles; or (5) a material breach by us of any provision of the 2014 Plan or an option agreement under the 2014 Plan or any othermaterial agreement between the optionholder and us concerning the terms and conditions of employment or service with us; and (ii) “cause” is generallydefined as the occurrence of any of the following events: (A) the optionholder’s commission of any felony or any crime involving fraud, dishonesty or moralturpitude under the laws of the United States or any state thereof; (B) the optionholder’s attempted commission of, or participation in, a fraud or act ofdishonesty against us; (C) the optionholder’s intentional, material violation of any contract or agreement between the optionholder and us or of any statutoryduty owed to us; (D) the optionholder’s unauthorized use or disclosure of our confidential information or trade secrets; or (E) the optionholder’s grossmisconduct.Amendment and Termination. Our board of directors has the authority to amend, suspend, or terminate the 2014 Plan, provided that such action doesnot materially impair the existing rights of any participant without such participant’s written consent. No ISOs may be granted after the tenth anniversary ofthe date our board of directors adopted the 2014 Plan.2011 Equity Incentive PlanGeneral. Our board of directors and our stockholders approved our 2011 Plan in March 2011. The 2011 Plan was subsequently amended by our boardof directors and our stockholders, most recently in February 2014. The 2011 Plan is the successor to and continuation of our 2001 Plan. As of December 31,2016, option awards under the 2011 Plan covering an aggregate of 412,715 shares of our common stock were outstanding. No additional awards will begranted under the 2011 Plan and all outstanding awards granted under the 2011 Plan that are repurchased, forfeited, expire or are cancelled will becomeavailable for grant under the 2014 Plan in accordance with its terms. Our board of directors, or a duly authorized committee thereof, has the authority toadminister the 2011 Plan. Our board of directors may also delegate certain authority to one or more of our officers. The plan administrator has the authority tomodify outstanding awards under our 2011 Plan, including the authority to reduce the exercise, purchase or strike price of any outstanding stock award,cancel any outstanding stock award in exchange for new stock awards, cash or other consideration, or take any other action that is treated as a repricing undergenerally accepted accounting principles, with the consent of any adversely affected participant.Stock Options. ISOs and NSOs are granted pursuant to stock option agreements adopted by the plan administrator. The plan administrator determinesthe exercise price for a stock option, within the terms and conditions of the 2011 Plan, provided that the exercise price of a stock option generally cannot beless than 100% of the fair market value of our common stock on the date of grant. Options granted under the 2011 Plan vest at the rate specified by the planadministrator.The plan administrator determines the term of stock options granted under the 2011 Plan, up to a maximum of 10 years. Unless the terms of anoptionholder’s stock option agreement provide otherwise, if an optionholder’s service relationship with us, or any of our affiliates, ceases for any reason otherthan disability, death or cause, the optionholder may generally exercise any vested options for a period of three months following the cessation of service.The option term may be extended in the event that exercise of the option following such a termination of service is prohibited by applicable securities lawsor our insider trading policy. If an optionholder’s service relationship with us or any of our affiliates ceases due to disability or death, or an optionholder dieswithin a certain period following cessation of service, the optionholder or a beneficiary may generally exercise any vested options for a period of 12 monthsin the event of disability and 18 months in the event of death. In the event of a termination for cause, options generally terminate immediately upon thetermination of the individual for cause. In no event may an option be exercised beyond the expiration of its term.Corporate Transactions. Unless otherwise provided in a stock award agreement or other written agreement between us and a participant, in the eventof certain specified significant corporate transactions, the plan administrator has the discretion to take any of the following actions with respect to stockawards: •arrange for the assumption, continuation or substitution of a stock award by a surviving or acquiring entity or parent company; •arrange for the assignment of any reacquisition or repurchase rights held by us to the surviving or acquiring entity or parent company;134 •accelerate the vesting, in whole or in part, of the stock award and provide for its termination prior to the effective time of the corporatetransaction; •arrange for the lapse of any reacquisition or repurchase right held by us; •cancel or arrange for the cancellation of the stock award in exchange for such cash consideration, if any, as our board of directors may deemappropriate; or •make a payment equal to the excess of (a) the value of the property the participant would have received upon exercise of the stock award over(b) the exercise price otherwise payable in connection with the stock award.Our plan administrator is not obligated to treat all stock awards, even those that are of the same type, in the same manner.Under the 2011 Plan, a corporate transaction is generally defined as the consummation of (1) a sale or other disposition of all or substantially all of ourassets, (2) a sale or other disposition of at least 90% of our outstanding securities, (3) a merger, consolidation or similar transaction following which we arenot the surviving corporation, or (4) a merger, consolidation or similar transaction following which we are the surviving corporation but the shares of ourcommon stock outstanding immediately prior to such transaction are converted or exchanged into other property by virtue of the transaction.Change of Control. The plan administrator may provide, in an individual award agreement or in any other written agreement between a participantand us that the stock award will be subject to additional acceleration of vesting and exercisability in the event of a change of control. Under the 2011 Plan, achange of control is generally defined as (1) the acquisition by a person or entity of more than 50% of our combined voting power other than by merger,consolidation or similar transaction, (2) a consummated merger, consolidation or similar transaction immediately after which our stockholders cease to ownmore than 50% of the combined voting power of the surviving entity, (3) approval by the stockholders or our board of directors of a plan of completedissolution or liquidation of us or our complete dissolution or liquidation occurs or (4) a consummated sale, lease or exclusive license or other disposition ofall or substantially of our assets.Certain options granted under the 2011 Plan, including the options held by our named executive officers, provide that if immediately prior to achange of control the participant’s service with the Company has not terminated, the option will accelerate vesting with respect to 25% of the then-unvestedportion of the option; if the option continues, the remaining 75% of the unvested option will continue to vest on the option’s original schedule prior to thechange of control and will accelerate vesting in full in the event that the participant’s continuous service is terminated without cause or by the participant forgood reason within the 12 months following the change of control. “Good reason” for purposes of this “double-trigger” provision is generally defined as(1) an assignment of duties or responsibilities to the participant that results in a material diminution of the participant’s function; (2) a material reduction inthe participant’s annual base salary; (3) failure to continue the participant’s benefit plans or programs, any action that would adversely affect the participant’sparticipation in any benefit plan, reduce the participant’s benefits under any benefit plan or deprive the participant of any fringe benefit; or (4) a relocation ofthe participant’s business office more than 50 miles.2001 Stock Option PlanOur board of directors and our stockholders approved our 2001 Plan, which became effective in February 2001. The 2001 Plan terminated and nofurther awards were granted under the 2001 Plan upon the effective date of the 2011 Plan. As of December 31, 2016, there were outstanding stock optionsunder our 2001 Plan covering a total of 74,681 shares of our common stock.2014 Employee Stock Purchase PlanGeneral. Our board of directors adopted the ESPP in December 2014 and our stockholders approved the ESPP in April 2015. The ESPP becameeffective on May 5, 2015 in connection with our initial public offering. The purpose of the ESPP is to retain the services of new employees and secure theservices of new and existing employees while providing incentives for such individuals to exert maximum efforts toward our success and that of our affiliates.The ESPP is intended to qualify as an “employee stock purchase plan” within the meaning of Section 423 of the Code. As of the date hereof, no shares of ourcommon stock have been purchased under the ESPP. Our board of directors has delegated its authority to administer the ESPP to our compensationcommittee.The ESPP initially authorized the issuance of 110,820 shares of our common stock pursuant to purchase rights granted to our employees or toemployees of any of our designated affiliates. The number of shares of our common stock reserved for issuance automatically increases on January 1 of eachcalendar year, from January 1, 2016 through January 1, 2024 by the least of (1) 1% of the total number of shares of our common stock outstanding onDecember 31 of the preceding calendar year, (2) 195,000 shares, or (3) a number determined by our board of directors that is less than (1) and (2).135 Offerings and Purchases. The ESPP is implemented through a series of offerings of purchase rights to eligible employees. Under the ESPP, we mayspecify offerings with durations of not more than 27 months, and may specify shorter purchase periods within each offering. Each offering will have one ormore purchase dates on which shares of our common stock will be purchased for employees participating in the offering. Generally, all regular employees,including executive officers, subject to certain restrictions, employed by us or by any of our designated affiliates, may participate in the ESPP and maycontribute, normally through payroll deductions, up to 15% of their earnings for the purchase of our common stock under the ESPP. Unless otherwisedetermined by our board of directors, common stock will be purchased for accounts of employees participating in the ESPP at a price per share equal to thelower of (1) 85% of the fair market value of a share of our common stock on the first date of an offering or (2) 85% of the fair market value of a share of ourcommon stock on the date of purchase.Changes to Capital Structure. In the event that there occurs a change in our capital structure through such actions as a stock split, merger,consolidation, reorganization, recapitalization, reincorporation, stock dividend, dividend in property other than cash, large nonrecurring cash dividend,liquidating dividend, combination of shares, exchange of shares, change in corporate structure or similar transaction, the board of directors will makeappropriate adjustments to (1) the number of shares reserved under the ESPP, (2) the maximum number of shares by which the share reserve may increaseautomatically each year and (3) the number of shares and purchase price of all outstanding purchase rights.Corporate Transactions. In the event of certain significant corporate transactions, including the consummation of: (1) a sale of all our assets, (2) thesale or disposition of 90% of our outstanding securities, (3) a merger or consolidation where we do not survive the transaction and (4) a merger orconsolidation where we do survive the transaction but the shares of our common stock outstanding immediately prior to such transaction are converted orexchanged into other property by virtue of the transaction, any then-outstanding rights to purchase our stock under the ESPP may be assumed, continued orsubstituted for by any surviving or acquiring entity (or its parent company). If the surviving or acquiring entity (or its parent company) elects not to assume,continue or substitute for such purchase rights, then the participants’ accumulated payroll contributions will be used to purchase shares of our common stockwithin ten business days prior to such corporate transaction, and such purchase rights will terminate immediately.Plan Amendments, Termination. Our board of directors has the authority to amend or terminate our ESPP, provided that except in certaincircumstances any such amendment or termination may not materially impair any outstanding purchase rights without the holder’s consent. We will obtainstockholder approval of any amendment to our ESPP as required by applicable law or listing requirements.401(k) PlanWe maintain a tax-qualified retirement plan that provides eligible employees with an opportunity to save for retirement on a tax advantaged basis. Allparticipants’ interests in their deferrals are 100% vested when contributed. In 2016, we made no matching contributions into the 401(k) plan. Pre-taxcontributions are allocated to each participant’s individual account and are then invested in selected investment alternatives according to the participants’directions. The 401(k) plan is intended to qualify under Sections 401(a) and 501(a) of the Code. As a tax-qualified retirement plan, contributions to the401(k) plan and earnings on those contributions are not taxable to the employees until distributed from the 401(k) plan, and all contributions are deductibleby us when made.Director CompensationThe following table sets forth in summary form information concerning the compensation that we paid or awarded during the year ended December 31,2016 to each of our non-employee directors: Name Fees Earned ($) Option Awards($) (5) Total ($) Peter T. Bisgaard (4) — — — Harry A. George 40,625 30,420 71,045 Ann F. Hanham (1) 14,700 26,100 40,800 Donnie M. Hardison (2) 24,887 43,660 68,547 Mary F. Hoult (3) 25,779 — 25,779 James T. LaFrance 40,407 27,960 68,367 Lee R. McCracken 46,562 27,960 74,522 Lewis J. Shuster 48,750 30,420 79,170 (1)Dr. Hanham’s service on our board of directors began August 29, 2016.(2)Mr. Hardison’s service on our board of directors began May 2, 2016.136 (3)Ms. Hoult’s service on our board of directors ended August 25, 2016.(4)Mr. Bisgaard waived compensation under our non-employee director compensation policy. Mr. Bisgaard resigned from our board of directors onMarch 2, 2017.(5)As of December 31, 2016, the aggregate number of shares outstanding under all options to purchase our common stock held by our non-employeedirectors were: Mr. George: 12,000; Mr. LaFrance: 16,000; Mr. McCracken: 16,000; Mr. Shuster: 24,569; Mr. Hardison: 16,000 and Dr. Hanham:10,000. None of the other directors listed in the table above held any options to purchase our common stock as of December 31, 2016. The dollaramounts in this column represent the aggregate grant date fair value of stock option awards granted in 2015. These amounts have been computed inaccordance with FASB ASC Topic 718, using the Black-Scholes option pricing model. Pursuant to SEC rules, the amounts shown exclude the impactof estimated forfeitures related to service-based vesting conditions. For a discussion of valuation assumptions, see Note 13 “Stock-basedCompensation” to our financial statements included elsewhere in this Annual Report.We have reimbursed and will continue to reimburse all of our non-employee directors for their travel, lodging and other reasonable expenses incurredin attending meetings of our board of directors and committees of our board of directors, and will pay for the travel, lodging and other reasonable expensesincurred by our employee directors to attend meetings of our board of directors and, as applicable, committees of our board of directors.We implemented a compensation policy for our non-employee directors upon completion of our IPO which provided that each such non-employeedirector received the following compensation for service on our board of directors: •an annual cash retainer of $35,000; •an additional annual cash retainer of $5,000 for service as chair of our board of directors; •an additional annual cash retainer of $10,000, $5,000 and $2,500 for service as chair of our audit committee, compensation committee andnominating and governance committee, respectively; •an automatic annual option grant to purchase 2,500 shares of our common stock for each non-employee director serving on the board ofdirectors on the date of each annual stockholder meeting, in each case vesting monthly in equal installments over a one-year period such thatthe stock option is fully vested on the first anniversary of the date of grant; and •upon first joining our board of directors an automatic initial option grant to purchase 5,000 shares of our common stock on the date of grant.One-third of the shares will vest twelve months after the date of grant and the remaining shares will vest monthly in equal installments over atwo-year period thereafter such that the stock option is fully vested on the third anniversary of the date of grant. A director who, in the one yearprior to his or her initial election to serve on the board of directors as a non-employee director, served as an employee of the company will notbe eligible for an initial grant.In April 2016, the non-employee director compensation policy was amended and restated such that non-employee director compensation for serviceon our board of directors is now as follows: •an annual cash retainer of $35,000; •an additional annual cash retainer of $30,000 for service as chair of our board of directors; •an additional annual cash retainer of $15,000, $10,000 and $7,500 for service as the chair of our audit committee, compensation committee andnominating and governance committee, respectively; •an additional annual cash retainer of $7,500, $5,000 and $3,750 for service as member of our audit committee, compensation committee andnominating and governance committee, respectively; •an automatic annual option grant to purchase 6,000 shares of our common stock for each non-employee director serving on the board ofdirectors on the date of each annual stockholder meeting, in each case vesting monthly in equal installments over a one-year period such thatthe stock option is fully vested on the first anniversary of the date of grant; and •upon first joining our board of directors an automatic initial option grant to purchase 10,000 shares of our common stock on the date of grant.One-third of the shares will vest twelve months after the date of grant and the remaining shares will vest monthly in equal installments over atwo-year period thereafter such that the stock option is fully vested on the third anniversary of the date of grant. A director who, in the one yearprior to his or her initial election to serve on the board of directors as a non-employee director, served as an employee of the company will notbe eligible for an initial grant.137 Each of the option grants described above will vest and become exercisable subject to the director’s continuous service with us through eachapplicable vesting date, provided that each option will vest in full upon a change of control, as defined under the 2014 Plan. The options will be grantedunder the 2014 Plan, the terms of which are described in more detail above under “– Equity Benefit Plans – 2014 Equity Incentive Plan.”Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.Securities Authorized for Issuance under Equity Compensation PlansThe following table provides certain information with respect to all of the Company’s equity compensation plans in effect as of December 31, 2016.Equity Compensation Plan Information Plan Category Number ofsecurities to beissued uponexercise ofoutstandingoptions, warrantsand rights (a) Weighted-averageexercise price ofoutstandingoptions, warrantsand rights (b) Number ofsecuritiesremainingavailable forissuance underequity compensationplans (excludingsecurities reflectedin column (a)) (c ) Equity compensation plans approved by security holders: 2001 Stock Option Plan 74,681 $5.77 — 2011 Equity Incentive Plan 412,715 3.35 — 2014 Equity Incentive Plan (1) 674,309 3.08 96,008 2014 Employee Stock Purchase Plan (2) — N/A 99,300 Equity compensation plans not approved by security holders — — — Total 1,161,705 195,308 (1)On January 1 of each year from January 1, 2016 through and including January 1, 2024, the number of shares authorized for issuance under the 2014Plan is automatically increased by a number equal to 4% of the total number of shares of our common stock outstanding on December 31 of thepreceding calendar year, or such lesser number of shares determined by our board of directors. On January 1, 2016, the available shares for purchaseunder the 2014 Plan was increased by 273,769 shares.(2)On January 1 of each year from January 1, 2016 through and including January 1, 2024, the number of shares authorized for issuance under our ESPPis automatically increased by a number equal to the least of: (a) 1% of the total number of shares of our common stock outstanding on December 31 ofthe preceding calendar year; (b) 195,000 shares; and (c) a number determined by the our board of directors that is less than the amounts set forth in theforegoing clauses (a) and (b). On January 1, 2016, the available shares for purchase under our ESPP was increased by 68,442 shares.Principal StockholdersThe following table sets forth certain information regarding the ownership of the Company’s common stock as of February 28, 2017 by: (i) eachdirector; (ii) each of our executive officers named in the Summary Compensation Table above; (iii) all executive officers and directors of the Company as agroup; and (iv) all those known by the Company to be beneficial owners of more than five percent of its common stock.138 The table is based upon information supplied by officers, directors and principal stockholders, Schedules 13G filed with the SEC and other sourcesbelieved to be reliable by us. Unless otherwise indicated in the footnotes to this table and subject to community property laws where applicable, theCompany believes that each of the stockholders named in this table has sole voting and investment power with respect to the shares indicated as beneficiallyowned. Applicable percentages are based on 7,938,571 shares outstanding on February 28, 2017, adjusted as required by rules promulgated by the SEC.Unless otherwise indicated, the address for each person or entity listed in the table is c/o HTG Molecular Diagnostics, Inc., 3430 E. Global Loop, Tucson,Arizona 85706. Common Stock Beneficially Owned Name and address of beneficial owner Shares Percentage Greater than 5% stockholders Novo A/S (1) 1,280,185 16.0%Turborg Havnevej 19 DK-2900 Hellerup, Denmark S.R. One Limited (2) 1,092,781 13.7%161 Washington Street, Suite 500 Conshohocken, PA 19428-2077 QIAGEN NV (3) 833,333 10.5%Hulsterweg 82, 5912 PL Venlo, The Netherlands Merck Capital Ventures, LLC (4) 785,140 9.9%One Merck Drive P.O. Box 1000 Whitehouse Station, NJ 08889-0100 FMR LLC (5) 673,461 8.5%245 Summer Street Boston, MA 02210 Entities affiliated with Putnam Investments LLC (6) 571,209 7.2%One Post Office Square Boston, MA 02109 Directors and named executive officers Timothy B. Johnson (7) 282,423 3.5%John L. Lubniewski (8) 118,004 1.5%Patrick C. Roche, Ph.D. (9) 84,724 1.1%Harry A. George (10) 154,366 1.9%Ann F. Hanham, Ph.D. — * Lewis J. Shuster (11) 22,569 * Lee McCracken (12) 9,131 * James T. LaFrance (13) 8,572 * Donnie M. Hardison (14) 4,000 * All current executive officers and directors as a group (11 persons) (15) 835,030 9.9% *Represents beneficial ownership of less than one percent.(1)Includes 49,786 shares issuable upon the exercise of warrants. The board of directors of Novo A/S, a Danish limited liability company, consists of StenScheibye, Göran Ando, Jeppe Christiansen, Steen Riisgaard and Per Wold-Olsen, who have shared investment and voting control with respect to theshares held by Novo A/S and may exercise such control only with the support of a majority of the members of the Novo A/S board of directors. Noindividual member of the Novo A/S board of directors is deemed to hold any beneficial ownership or reportable pecuniary interest in the shares heldby Novo A/S.(2)Includes 43,538 shares issuable upon the exercise of warrants. Voting and/or dispositive powers with respect to shares held in the name of S.R. OneLimited are exercised by S.R. One Limited through a collective vote of S.R. One Limited’s principals, on a majority vote basis.(3)The 833,333 shares of common stock are held of record by QIAGEN North American Holdings, Inc., a wholly-owned subsidiary of QIAGEN N.V.(4)Includes 28,436 shares issuable upon the exercise of warrants.(5)Abigail P. Johnson is a director, the Vice Chairman, the Chief Executive Officer and President of FMR LLC. Members of the Johnson family,including Abigail P. Johnson, are the predominant owners, directly or through trusts, of Series B voting common shares of the FMR LLC, representing49% of the voting power of FMR LLC. The Johnson family group and all other139 Series B shareholders have entered into a shareholders’’ voting agreement under which all Series B voting common shares will be voted in accordancewith the majority vote of the Series B voting common shares. Accordingly, through their ownership of voting common shares and the execution of theshareholders’ voting agreement, members of the Johnson family may be deemed, under the Investment Company Act of 1940, to form a controllinggroup with respect to FMR LLC. Neither FRM LLC nor Abigail P. Johnson has the sole power to vote or direct the voting of the shares owned directlyby the various investment companies registered under the Investment Company Act advised by Fidelity Management & Research Company, a whollyowned subsidiary of FMR LLC, which power resides with the Fidelity Funds’ Boards of Trustees. Fidelity Management & Research Company carriesout the voting of the shares under written guidelines established by Fidelity Funds’ Board of Trustees. This information is based on the Schedule 13Gfiled on February 12, 2016 with the SEC. (6)The number of shares beneficially owned consists of (a) 543,544 shares held by Putnam Investment Management and (b) 27,665 shares held by ThePutnam Advisory Company, LLC, both wholly owned subsidiaries of Putnam Investments, LLC. Putnam Investment Management is the investmentadviser to the Putnam family of mutual funds and the Putnam Advisory Company, LLC is the investment adviser to Putnam’s institutional clients.Both subsidiaries have dispositive power over the shares as investment managers. In the case of shares held by the Putnam mutual funds managed byPutnam Investment Management, LLC, the mutual funds, through their boards of trustees, have voting power. Unless otherwise indicated, The PutnamAdvisory Company, LLC has sole voting power over the shares held by its institutional clients. This information is based on the Schedule 13G/A filedon February 14, 2017 with the SEC. (7)Includes 210,210 shares that Mr. Johnson has the right to acquire from us within 60 days of February 28, 2017 pursuant to the exercise of stockoptions. (8)Includes 81,215 shares that Mr. Lubniewski has the right to acquire from us within 60 days of February 28, 2017 pursuant to the exercise of stockoptions.(9)Includes 53,810 shares that Dr. Roche has the right to acquire from us within 60 days of February 28, 2017 pursuant to the exercise of stock options.(10)Consists of shares beneficially owned by Solstice Capital II LP. Mr. George is the managing member of Solstice Capital and has joint voting andinvestment power over the shares held by Solstice Capital II LP.(11)Includes 22,569 shares that Mr. Shuster has the right to acquire from us within 60 days of February 28, 2017 pursuant to the exercise of stock options. (12)Includes 9,131 shares that Mr. McCracken has the right to acquire from us within 60 days of February 28, 2017 pursuant to the exercise of stockoptions.(13)Includes 8,572 shares that Mr. LaFrance has the right to acquire from us within 60 days of February 28, 2017 pursuant to the exercise of stock options.(14)Includes 4,000 shares that Mr. Hardison has the right to acquire from us within 60 days of February 28, 2017 pursuant to the exercise of stock options.(15)The number of shares beneficially owned consists of (a) the shares described in Notes (7) through (14), and (b) 61,022 shares beneficially owned,90,219 shares issuable upon exercise of options within 60 days of February 28, 2017 pursuant to the exercise of stock options.Item 13. Certain Relationships and Related Transactions, and Director Independence.We have adopted a written related-person transactions policy that sets forth our policies and procedures regarding the identification, review,consideration and oversight of “related-person transactions.” For purposes of our policy only, a “related-person transaction” is a transaction, arrangement orrelationship (or any series of similar transactions, arrangements or relationships) in which we and any “related person” are participants involving an amountthat exceeds the lesser of $120,000 or one percent of the average of the Company’s total assets at year-end for the last two completed fiscal years.Transactions involving compensation for services provided to us as an employee, consultant or director are not considered related-person transactionsunder this policy. A “related person” is any executive officer, director or a holder of more than five percent of our common stock, including any of theirimmediate family members and any entity owned or controlled by such persons.140 Under the policy, where a transaction has been identified as a related-person transaction, management must present information regarding theproposed related-person transaction to our audit committee (or, where review by our audit committee would be inappropriate, to another independent body ofour board of directors) for review. The presentation must include a description of, among other things, the material facts, the direct and indirect interests ofthe related persons, the benefits of the transaction to us and whether any alternative transactions are available. To identify related-person transactions inadvance, we rely on information supplied by our executive officers, directors and certain significant stockholders. In considering related-person transactions,our audit committee or other independent body of our board of directors takes into account the relevant available facts and circumstances including, but notlimited to: •the risks, costs and benefits to us; •the impact on a director’s independence in the event the related person is a director, immediate family member of a director or an entity withwhich a director is affiliated; •the terms of the transaction; •the availability of other sources for comparable services or products; and •the terms available to or from, as the case may be, unrelated third parties or to or from our employees generally.In the event a director has an interest in the proposed transaction, the director must recuse himself or herself from the deliberations and approval.The following sections summarize transactions since January 1, 2014 to which we have been a party, in which the amount involved in the transactionexceeded the lesser of $120,000 or one percent of the average of the Company’s total assets at year-end for the last two completed fiscal years, and in whichany of our directors, executive officers or, to our knowledge, beneficial owners of more than 5% of our capital stock or any member of the immediate familyof any of the foregoing persons had or will have a direct or indirect material interest, other than equity and other compensation, termination, change incontrol and other arrangements, which are described under “Executive Compensation” and “Director Compensation.”Preferred Stock and Warrant FinancingsFrom February 4, 2014 through March 31, 2014, we issued and sold to investors in two closings an aggregate of 34,453,538 shares of our Series Epreferred stock at a purchase price of $0.2189 per share, for aggregate consideration of $7.5 million. We also issued to investors in our Series E preferred stockfinancing warrants to purchase up to an aggregate of 11,484,503 shares of our Series E preferred stock at an issue price of $0.0001 per share underlying thewarrants, for aggregate consideration of $1,148. The Series E warrants were exercisable for $0.001 per share and were each exercised immediately uponissuance for an aggregate cash purchase price of $11,484.The participants in these preferred stock financings included the following executive officers, directors and holders of more than 5% of our capitalstock: Participants Series EPreferred Stock (1) Executive Officers and Directors Timothy B. Johnson 60,910 John L. Lubniewski 76,138 Shaun D. McMeans 152,276 Debra A. Gordon 7,646 James R. Weersing (2) 609,106 5% or Greater Stockholders Novo A/S 15,227,653 S.R. One, Limited 15,227,653 Merck Capital Ventures, LLC 7,613,826 Entities affiliated with Fletcher Spaght Associates 6,091,062 (1)Includes the shares of Series E preferred stock issued to the participant upon exercise of the Series E preferred stock warrants issued in the financing.(2)Mr. Weersing served on our board of directors until April 2015. Mr. Weersing participated in the financings through his affiliated family trust.141 Certain of our former directors were affiliated with the investors that participated in the preferred stock financings described above, as indicated in thetable below: Director Principal StockholderPeter T. Bisgaard (1) Novo A/SSimeon J. George, M.D. (2) S.R. One LimitedMary F. Hoult (3) Fletcher Spaght AssociatesLarry Senour (4) Merck Capital Ventures, LLC (1)Mr. Bisgaard resigned from our board of directors in March 2017.(2)Dr. George resigned from our board of directors in October 2015.(3)Ms. Hoult’s service on our board of directors ended in August 2016.(4)Mr. Senour resigned from our board of directors in May 2015. Convertible Note and Warrant FinancingsIn December 2014, we entered into two separate note and warrant purchase agreements, or collectively, the 2014 note purchase agreements, withcertain of our existing investors, including beneficial owners of more than 5% of our capital stock and certain entities affiliated with members of our board ofdirectors. The first note and warrant purchase agreement, or the first note purchase agreement, provided for the sale and issuance by us of up to an aggregateof $7.3 million in principal amount of convertible notes in a series of closings, each of which were to be approved by the unanimous vote or written consentof those members of our board of directors who were not an affiliate of any of the investors under such agreement. The second note and warrant purchaseagreement, or the second note purchase agreement, provided for the sale and issuance by us of up to an aggregate of $6.2 million in principal amount ofconvertible notes in a series of closings, each of which were to be approved by (i) our board of directors, including a majority of the directors elected by theholders of our Series E preferred stock, and (ii) investors whose purchase amount for such closing equaled or exceeded 50% of the aggregate principal amountof notes to be sold at such closing. Notes issued under the 2014 note purchase agreements accrued interest at a rate of 8% per annum, compounded annually,and became due and payable on March 31, 2016, subject to their earlier conversion in the event we completed an initial public offering in which we receivedgross offering proceeds of at least $20.0 million from the sale of shares to investors who were not holders of our securities, or a qualified initial publicoffering, or a private placement of our preferred stock (whether in one single transaction or several tranches) resulting in aggregate gross proceeds of at least$20.0 million from sales of securities to investors who were not holders of our securities, or a qualified private placement of our equity securities. The numberof shares into which the notes may be converted, common shares in the case of a qualified initial public offering or preferred shares in the case of a qualifiedprivate placement, was equal to the outstanding principal and accrued interest divided by the price per share paid by investors purchasing such newly issuedequity securities. Certain provisions of the first note purchase agreement terminated (including the investors’ obligations to purchase notes thereunder)immediately prior to the earlier to occur of the closing of (i) a qualified initial public offering or (ii) a qualified private placement and certain provisions ofthe second note purchase agreement terminated (including the investors’ obligations to purchase notes thereunder) immediately prior to the earlier to occurof (x) the time at which a registration statement covering a public offering of our securities under the Securities Act of 1933, as amended, becomes effective or(y) the initial closing of a qualified private placement. Such provisions of the 2014 note purchase agreements (including the investors’ obligations topurchase notes thereunder) terminated in connection with the closing of our IPO in May 2015. In February, March and April 2015, we issued an aggregate of$4.5 million in principal amount of the 2015 notes to investors in three closings under the first note purchase agreement. There were no draws under thesecond note purchase agreement prior to our IPO in May 2015.In January 2015, in connection with the 2014 note purchase agreements, we issued warrants, or the 2015 warrants, which were initially exercisable foran aggregate of 9,311,586 shares of our Series E preferred stock at an exercise price of $0.2189 per share. In connection with the closing of our IPO, the 2015warrants became exercisable for an aggregate of 144,772 shares of our common stock at an exercise price of $14.00 per share.142 The participants in these convertible note and warrant financings included the following holders of more than 5% of our capital stock: Participants Shares ofSeries EPreferred StockUnderlying2015 Warrants AggregatePrincipalAmount of2015 Notes(in thousands) (1) Directors James R. Weersing 51,126 — 5% or Greater Stockholders Novo A/S 3,184,170 1,535 S.R. One, Limited 2,784,593 1,535 Merck Capital Ventures, LLC 1,818,681 768 Entities affiliated with Fletcher Spaght Associates 1,358,988 614 (1) Includes amounts purchased in note closings in February, March and April 2015. Investor Rights AgreementIn connection with our preferred stock financings, we entered into an Amended and Restated Investor Rights Agreement containing registration rights,information rights, voting rights and rights of first refusal, among other things, with certain holders of our convertible preferred stock and certain holders ofour common stock. In connection our IPO, we entered into a further Amended and Restated Investor Rights Agreement with these holders which eliminatedall of the rights and obligations provided in the first Amended and Restated Investor Rights Agreement, except for the registration rights granted under thenew agreement. The holders of at least 50% of the registrable securities have the right to make up to two demands that we file a registration statement underthe Securities Act covering such holders’ registrable securities then outstanding (provided that the anticipated aggregate offering price of securities requestedto be sold under such registration statement is at least $7.5 million), subject to specified exceptions, conditions and limitations. If we are eligible to file aregistration statement on Form S-3, the holders of at least 50% or more of the outstanding registrable securities have the right to demand that we file aregistration statement on Form S-3 so long as the aggregate amount of securities to be sold under the registration statement on Form S-3 is at least $5.0million, subject to specified exceptions, conditions and limitations. If we propose to register any securities for public sale, holders of registration rights willhave the right to include their shares in the registration statement (except with respect to this offering, for which the holders have waived any and all rights tohave their shares included). The underwriters of any underwritten offering will have the right to limit the number of shares having registration rights to beincluded in the registration statement, subject to specified conditions and limitations. Generally, we are required to bear all registration and selling expensesincurred in connection with the demand, piggyback and Form S-3 registrations described above, other than underwriting discounts and commissions. Thedemand, piggyback and Form S-3 registration rights discussed above will terminate in May 2017 or, as to a given holder of registrable securities, when suchholder is able to sell all of its registrable securities in a single 90-day period under Rule 144 of the Securities Act.Employment ArrangementsWe currently have written employment agreements with our executive officers. For information about our employment agreements with our namedexecutive officers, refer to “Executive Compensation – Agreements with our Named Executive Officers.”Stock Options Granted to Executive Officers and DirectorsWe have granted stock options to our executive officers and directors, as more fully described in “Executive Compensation – Outstanding EquityAwards at Fiscal Year-End.”Indemnification AgreementsWe have entered into, and intend to continue to enter into, separate indemnification agreements with our directors and executive officers, in additionto the indemnification provided for in our amended and restated bylaws. These agreements, among other things, require us to indemnify our directors andexecutive officers for certain expenses, including attorneys’ fees, judgments, fines and settlement amounts incurred by a director or executive officer in anyaction or proceeding arising out of their services as one of our directors or executive officers or any other company or enterprise to which the person providesservices at our request. We believe that these bylaw provisions and indemnification agreements are necessary to attract and retain qualified persons asdirectors and officers.143 The limitation of liability and indemnification provisions in our amended and restated certificate of incorporation and amended and restated bylawsmay discourage stockholders from bringing a lawsuit against directors for breach of their fiduciary duties. They may also reduce the likelihood of derivativelitigation against directors and officers, even though an action, if successful, might benefit us and our stockholders. A stockholder’s investment may beharmed to the extent we pay the costs of settlement and damage awards against directors and officers pursuant to these indemnification provisions.Director IndependenceOur board of directors has determined that all of our directors other than Mr. Johnson are independent directors, as defined by Rule 5605(a)(2) of theNASDAQ Listing Rules. The NASDAQ independence definition includes a series of objective tests, including that the director is not, and has not been for atleast three years, one of our employees and that neither the director nor any of his family members has engaged in various types of business dealings with us.In addition, as required by NASDAQ rules, our board of directors has made a subjective determination as to each independent director that no relationshipsexist, which, in the opinion of our board of directors, would interfere with the exercise of independent judgment in carrying out the responsibilities of adirector. In making these determinations, our board of directors reviewed and discussed information provided by the directors and us with regard to eachdirector’s business and personal activities and relationships as they may relate to us and our management. Item 14. Principal Accounting Fees and Services.The following table summarizes the fees of BDO USA, LLP, our independent registered public accounting firm, for 2016 and 2015. December 31, 2016 2015 Fee Category Audit fees (1) $297,997 $420,471 Audit-related fees — — Tax fees — — All other fees — — Total fees $297,997 $420,471 (1)Audit fees consist of fees for professional services provided primarily in connection with the audit of our annual financial statements, review of ourquarterly financial statements and our initial public offering in 2015.Pre-Approval Policies and ProceduresPursuant to its charter, the audit committee must review and approve, in advance, the scope and plans for the audits and the audit fees and approve inadvance (or, where permitted under the rules and regulations of the SEC, subsequently) all non-audit services to be performed by the independent auditor thatare not otherwise prohibited by law and any associated fees. The audit committee may delegate to one or more members of the committee the authority to pre-approve audit and permissible non-audit services, as long as this pre-approval is presented to the full committee at scheduled meetings. All fees describedabove were pre-approved by the audit committee. 144 PART IVItem 15. Exhibits, Financial Statement Schedules.(a)(1)Financial Statements - The financial statements filed as part of this Annual Report on Form 10-K are listed on the Index to Financial Statements inItem 8.(a)(2)Financial Statement SchedulesAll schedules are omitted because they are not applicable or the required information is shown in the financial statements or the notes thereto.(a)(3)ExhibitsThe exhibits required by Item 601 of Regulation S-K are listed in paragraph (b) below.(b)Exhibits.The exhibits listed on the Exhibit Index (following the Signatures section of this report) are filed herewith or are incorporated by reference to exhibitspreviously filed with the SEC.Item 16. Form 10-K Summary. Not applicable. 145 SIGNATURESPursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this Report tobe signed on its behalf by the undersigned, thereunto duly authorized. HTG Molecular Diagnostics, Inc. Date: March 23, 2017 By:/s/ Timothy B. Johnson Timothy B. Johnson President and Chief Executive Officer(Principal Executive Officer) KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Timothy Johnson andShaun D. McMeans, jointly and severally, his or her attorneys-in-fact, each with the power of substitution, for him or her in any and all capacities, to sign anyamendments to this report, and to file the same, with exhibits thereto and other documents in connection therewith with the Securities and ExchangeCommission, hereby ratifying and confirming all that each of said attorneys-in-fact, or his or her substitute or substitutes may do or cause to be done by virtuehereof.Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of theRegistrant in the capacities and on the dates indicated: Signature Title Date /s/ Timothy B. JohnsonTimothy B. Johnson President, Chief Executive Officer and Member of the Board of Directors(Principal Executive Officer) March 23, 2017 /s/ Shaun D. McMeansShaun D. McMeans Chief Financial Officer(Principal Financial and Accounting Officer) March 23, 2017 /s/ Ann F. HanhamAnn F. Hanham Chair of the Board of Directors March 23, 2017 /s/ Harry A. GeorgeHarry A. George Member of the Board of Directors March 23, 2017 /s/ James T. LaFranceJames T. LaFrance Member of the Board of Directors March 23, 2017 /s/ Lee R. McCrackenLee R. McCracken Member of the Board of Directors March 23, 2017 /s/ Lewis J. ShusterLewis J. Shuster Member of the Board of Directors March 23, 2017 /s/ Donnie M. Hardison Member of the Board of Directors March 23, 2017Donnie M. Hardison 146 Exhibit Index ExhibitNumber Description 2.1 Asset Purchase Agreement dated January 9, 2001, as amended by and between the Registrant, NuvoGen, L.L.C., Stephen Felder and RichardKris (incorporated by reference to Exhibit 2.1 to the Registrant’s registration Statement on Form S-1, as amended (File No. 333-201313),originally filed with the SEC on December 30, 2014). 3.1 Amended and Restated Certificate of Incorporation of the Registrant (incorporated by reference to Exhibit 3.1 to the Registrant’s CurrentReport on Form 8-K, filed with the SEC on May 12, 2015). 3.2 Amended and Restated Bylaws of the Registrant (incorporated by reference to Exhibit 3.2 to the Registrant’s Current Report on Form 8-K,filed with the SEC on May 12, 2015). 4.1 Reference is made to Exhibits 3.1 and 3.2. 4.2 Form of Common Stock Certificate of the Registrant (incorporated by reference to Exhibit 4.1 to the Registrant’s Registration Statement onForm S-1, as amended (File No. 333-201313), originally filed with the SEC on December 30, 2014). 4.3 Common Stock Warrant issued by the Registrant to the University of Arizona, dated March 13, 2009 (incorporated by reference to Exhibit 4.2to the Registrant’s Registration Statement on Form S-1, as amended (File No. 333-201313), originally filed with the SEC on December 30,2014). 4.4 Series C-2 Preferred Stock Warrant issued by the Registrant to Silicon Valley Bank, dated December 24, 2008 (incorporated by reference toExhibit 4.3 to the Registrant’s Registration Statement on Form S-1, as amended (file No. 333-201313), originally filed with the SEC onDecember 30, 2014). 4.5 Series E Preferred Stock Warrant issued by the Registrant to Silicon Valley Bank, dated August 22, 2014 (incorporated by reference to Exhibit4.4 to the Registrant’s Registration Statement on Form S-1, as amended (File No. 333-201313), originally filed with the SEC on December 30,2014). 4.6 Series E Preferred Stock Warrant issued by the Registrant to Oxford Finance LLC, dated August 22, 2014 (incorporated by reference to Exhibit4.5 to the Registrant’s Registration Statement on Form S-1, as amended (File No. 333-201313), originally filed with the SEC on December 30,2014). 4.7 Form of Warrant issued by Registrant to bridge financing investors (incorporated by reference to Exhibit 4.6 to the Registrant’s RegistrationStatement on Form S-1, as amended (File No. 333-201313), originally filed with the SEC on December 30, 2014). 4.8 Form of Warrant issued by Registrant to bridge financing investors (incorporated by reference to Exhibit 4.7 to the Registrant’s RegistrationStatement on Form S-1, as amended (File No. 333-201313), originally filed with the SEC on December 30, 2014). 4.9 Amended and Restated Investor Rights Agreement by and among the Registrant and certain of its stockholders, dated May 11, 2015(incorporated by reference to Exhibit 4.8 to the Registrant’s Registration Statement on Form S-1, as amended (File No. 333-201313), originallyfiled with the SEC on December 30, 2014). 10.1+ Form of Indemnity Agreement by and between the Registrant and its directors and officers (incorporated by reference to Exhibit 10.1 to theRegistrant’s Registration Statement on Form S-1, as amended (File No. 333-201313), originally filed with the SEC on December 30, 2014). 10.2+ HTG Molecular Diagnostics, Inc. 2001 Stock Option Plan and Forms of Stock Option Agreement and Stock Option Grant Notice thereunder(incorporated by reference to Exhibit 10.2 to the Registrant’s Registration Statement on Form S-1, as amended (File No. 333-201313),originally filed with the SEC on December 30, 2014). 10.3+ HTG Molecular Diagnostics, Inc. 2011 Equity Incentive Plan and Forms of Stock Option Agreement, Notice of Exercise and Stock OptionGrant Notice thereunder (incorporated by reference to Exhibit 10.3 to the Registrant’s Registration Statement on Form S-1, as amended (FileNo. 333-201313), originally filed with the SEC on December 30, 2014). 10.4+ HTG Molecular Diagnostics, Inc. 2014 Equity Incentive Plan and Forms of Stock Option Agreement, Notice of Exercise and Stock OptionGrant Notice thereunder (incorporated by reference to Exhibit 99.3 to the Registrant’s Registration Statement on Form S-8 (File No. 333-203930), filed with the SEC on May 7, 2015).147 ExhibitNumber Description 10.5+ HTG Molecular Diagnostics, Inc. 2014 Employee Stock Purchase Plan (incorporated by reference to Exhibit 10.5 to the Registrant’sRegistration Statement on Form S-1, as amended (File No. 333-201313), originally filed with the SEC on December 30, 2014). 10.6+ HTG Molecular Diagnostics, Inc. Amended and Restated Non-Employee Director Compensation Policy (incorporated by reference to Exhibit10.1 to the Registrant’s Quafterly Report on Form 10-Q, filed with the SEC on August 9, 2016). 10.7+ Employment Letter Agreement dated December 24, 2014 by and between the Registrant and Timothy Johnson (incorporated by reference toExhibit 10.7 to the Registrant’s Registration Statement on Form S-1, as amended (File No. 333-201313), originally filed with the SEC onDecember 30, 2014). 10.8+ Employment Letter Agreement dated December 18, 2014 by and between the Registrant and John Lubniewski (incorporated by reference toExhibit 10.8 to the Registrant’s Registration Statement on Form S-1, as amended (File No. 333-201313), originally filed with the SEC onDecember 30, 2014). 10.9+ Employment Letter Agreement dated December 15, 2014 by and between the Registrant and Debra Gordon (incorporated by reference toExhibit 10.9 to the Registrant’s Registration Statement on Form S-1, as amended (File No. 333-201313), originally filed with the SEC onDecember 30, 2014). 10.10+ Employment Letter Agreement dated December 15, 2014 by and between the Registrant and Shaun McMeans (incorporated by reference toExhibit 10.10 to the Registrant’s Registration Statement on Form S-1, as amended (File No. 333-201313), originally filed with the SEC onDecember 30, 2014). 10.11+ Employment Letter Agreement dated December 15, 2014 by and between the Registrant and Patrick Roche (incorporated by reference toExhibit 10.11 to the Registrant’s Registration Statement on Form S-1, as amended (File No. 333-201313), originally filed with the SEC onDecember 30, 2014). 10.12 Standard Commercial-Industrial Multi Tenant Triple Net Lease dated July 11, 2008 by and between the Registrant and Pegasus Properties LP(incorporated by reference to Exhibit 10.12 to the Registrant’s Registration Statement on Form S-1, as amended (File No. 333-201313),originally filed with the SEC on December 30, 2014). 10.13 Standard Commercial-Industrial Multi Tenant Triple Net Lease dated May 11, 2011 by and between the Registrant and Pegasus Properties LP(incorporated by reference to Exhibit 10.13 to the Registrant’s Registration Statement on Form S-1, as amended (File No. 333-201313),originally filed with the SEC on December 30, 2014). 10.14* First Amendment to Lease Agreement (Suite 100 – Administration), dated August 4, 2015, by and between Pegasus Properties, L.P. and theRegistrant (incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q, filed with the SEC on November 12,2015). 10.15* First Amendment to Lease Agreement (Suite 300 – Laboratory), dated August 4, 2015, by and between Pegasus Properties, L.P. and theRegistrant (incorporated by reference to Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q, filed with the SEC on November 12,2015). 10.16 Loan and Security Agreement, dated August 22, 2014, by and among the Registrant, Oxford Finance LLC and Silicon Valley Bank(incorporated by reference to Exhibit 10.15 to the Registrant’s Registration Statement on Form S-1, as amended (File No. 333-201313),originally filed with the SEC on December 30, 2014). 10.17 First Amendment to Loan and Security Agreement and First Amendment to Disbursement Letter, dated August 4, 2015, by and betweenRegistrant, Oxford Finance LLC and Silicon Valley Bank (incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report onForm 10-Q, filed with the SEC on August 7, 2015). 10.18 Termination of Security Agreement, Release of Security Interest and Understanding Regarding Asset Purchase Agreement, dated August 22,2014, by and between the Registrant and NuvoGen Research LLC (incorporated by reference to Exhibit 10.16 to the Registrant’s RegistrationStatement on Form S-1, as amended (File No. 333-201313), originally filed with the SEC on December 30, 2014). 10.19* IVD Test Development and Component Supply Agreement, dated October 15, 2014, by and between the Registrant and Illumina, Inc.(incorporated by reference to Exhibit 10.17 to the Registrant’s Registration Statement on Form S-1, as amended (File No. 333-201313),originally filed with the SEC on December 30, 2014).148 ExhibitNumber Description 10.20 HTG Molecular Diagnostics, Inc. Amended and Restated Stock Purchase Plan (incorporated by reference to Exhibit 99.1 to the Registrant’sQuarterly Report on Form 10-Q, filed with the SEC on August 9, 2016). 10.21* Authorization, Supply, and Regulatory Authorization Agreement, dated March 16, 2016, by and between HTG Molecular Diagnostics, Inc.and Life Technologies Corporation (incorporated by reference to Exhibit 99.1 to the Registrant’s Current Report on Form 8-K, filed with theSEC on March 21, 2016). 10.22 Second Amendment to Loan and Security Agreement, dated June 1, 2016, by and between Registrant, Oxford Finance LLC and Silicon ValleyBank (incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q filed with the SEC on August 9, 2016). 10.23* Master Assay Development, Commercialization and Manufacturing Agreement, dated November 16, 2016, by and between Registrant andQIAGEN Manchester Limited. 10.24 Stock Purchase Agreement, dated November 16, 2016, by and between Registrant and QIAGEN North American Holdings, Inc. 23.1 Consent of Independent Registered Public Accounting Firm. 24.1 Power of Attorney. Reference is made to the signature page hereto. 31.1 Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as AdoptedPursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2 Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as AdoptedPursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32.1 Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Actof 2002. 32.2 Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Actof 2002. 101.INS XBRL Instance Document 101.SCH XBRL Taxonomy Extension Schema Document 101.CAL XBRL Taxonomy Extension Calculation Linkbase Document 101.DEF XBRL Taxonomy Extension Definition Linkbase Document 101.LAB XBRL Taxonomy Extension Label Linkbase Document 101.PRE XBRL Taxonomy Extension Presentation Linkbase Document *We have requested confidential treatment for certain portions of this agreement. Omitted portions have been filed separately with the SEC.+Indicates management contract or compensatory plan. 149Exhibit 10.23 ***Text Omitted and Filed Separately withthe Securities and Exchange Commission.Confidential Treatment Requested Under17 C.F.R. Sections 200.80(b)(4) and 240.24b-2. MASTER ASSAY DEVELOPMENT, COMMERCIALIZATIONAND MANUFACTURING AGREEMENTThis Master Assay Development, Commercialization and Manufacturing Agreement (“Agreement”), is entered into andeffective as of November 16, 2016 (the “Effective Date”), by and between QIAGEN Manchester Limited, a UK corporation havingoffices at Skelton House, Lloyd Street North, Manchester, UK (“QIAGEN”), and HTG Molecular Diagnostics, Inc., a Delawarecorporation having offices at 3430 E. Global Loop, Tucson, AZ, U.S.A. 85706 (“HTG”). HTG and QIAGEN are herein referred toeach as a “Party” and collectively as the “Parties.” RECITALSA.QIAGEN is a leading provider of sample to insight technologies, including, inter alia, sequencing equipment andbioinformatics analytics, and companion diagnostic assays to aid in the selection and use of pharmaceutical products for the treatmentof disease;B.HTG is a leading provider of novel technologies based on targeted nuclease protection chemistry to facilitate theroutine use of complex molecular profiling in a multiplexed panel format from low amounts of samples, which is useful inter alia forcompanion diagnostic assays;C.QIAGEN and HTG desire to engage in a collaborative relationship, involving performing collaborative assaydevelopment and manufacturing activities involving each Party’s applicable technology, which is intended to support QIAGEN’sentering into companion diagnostic development programs with third party pharmaceutical companies, and, if applicable and agreed toby the Parties in each case, to facilitate QIAGEN’s or HTG’s existing, independent programs;D.Each Party desires to engage in such collaborative development and commercial activities in accordance with theterms and conditions of this Agreement and individual Statements of Work (as defined below) entered into by the Parties.NOW, THEREFORE, in consideration of the foregoing recitals and the mutual obligations and responsibilities of theParties as set forth herein, the receipt and total sufficiency of which is hereby acknowledged, the Parties agree as follows:AGREEMENT 1.DEFINITIONS1.1“Affiliate” means, with respect to a Party, any corporation, partnership or other business organization that, directly orindirectly, controls, is controlled by or is under common control with such Party. For the purpose of this definition “control” (withcorrelative meanings for the terms “controlled by” and “under common control with”) shall mean that the applicable businessorganization has the actual ability to direct and control the management and business decisions of the applicable Party, including byholding more than 50% (fifty percent) of the voting stock or other ownership interests of the applicable corporation or business entity. Page 1 of 28 1.2“AM Field” means the development and commercialization of companion diagnostic assays in the PDP Field for use inconnection with autoimmune or microbiome therapeutics developed by Sponsors.1.3 “Applicable Law(s)” means all applicable provisions of all statutes, laws, rules, regulations, administrative codes,ordinances, decrees, orders, decisions, injunctions, awards, judgments, permits and licenses of or from Federal, State and localgovernmental authorities, including regulatory authorities, as the same may be amended from time to time, that are applicable to theparticular obligation, task or undertaking under this Agreement.1.4“Change of Control” means, with respect to a Party, either (a) a sale of all or substantially all of such Party’s assets orbusiness to which this Agreement relates; (b) a merger or consolidation of such Party in which the stockholders of such Partyimmediately prior thereto do not own, directly or indirectly, either (x) outstanding voting securities representing more than fiftypercent (50%) of the combined outstanding voting power of the surviving entity in such merger or consolidation or (y) more than fiftypercent (50%) of the combined outstanding voting power of the parent of the surviving entity in such merger or consolidation, in eachcase in substantially the same proportion as their ownership of the outstanding voting securities of such Party immediately prior tosuch transaction; or (c) a transaction or series of transactions that result in any Exchange Act Person becoming the owner, directly orindirectly, of securities of such Party representing more than fifty percent (50%) of the combined voting power of such Party’s then-outstanding securities (other than by virtue of a merger or consolidation and excluding any acquisition of securities of such Partydirectly from such Party).1.5Confidential Information” means, with respect to a Party, all proprietary and/or confidential information of such Party(the “Disclosing Party” as to such information) provided orally or in writing to the other Party (the “Receiving Party” as to suchinformation), or as observed by such Receiving Party on visits to the Disclosing Party’s facilities, which may include any informationthat relates to the Disclosing Party’s new or existing products, services and/or business operations, product development plans,standard operating procedures, specifications, pricing information, business methods, trade secrets, business processes, business plans,inventions, techniques, and other information not readily available to the public, whether or not labeled as “Confidential” or“Proprietary” or otherwise reduced to writing, but provided that “Confidential Information” shall not include any information that meetsany of the exclusions in Section 6.5. For purposes of this Agreement, the Party disclosing its Confidential Information hereunder shallbe referred to as “Disclosing Party” with respect to such information, while the Party receiving the Disclosing Party’s ConfidentialInformation hereunder shall be referred to as the “Receiving Party” as to such information. In addition, all HTG IP shall be deemedthe Confidential Information of HTG, and all QIAGEN IP shall be deemed the Confidential Information of QIAGEN, subject ineach case to information that meets any of the exclusions in Section 6.5. 1.6“Cost of Goods” means, with respect to a particular HTG or QIAGEN instrument or tool or other product (excluding anyPDP Assay) sold or transferred as contemplated in Section 5.2.3, all costs and expenses actually incurred by HTG or QIAGEN (asapplicable) with respect to such instrument or tool or other product that are appropriately characterized as “cost of goods sold” inaccordance with U.S. GAAP (including any costs and expenses allocated to “cost of goods sold” in a manner consistent with HTG orQIAGEN’s (as applicable) past practices in preparation of its audited financial statements). Page 2 of 28 1.7“Intellectual Property Rights” means all rights of the following types, which may exist or be created under the laws of anyjurisdiction in the world: (i) rights associated with works of authorship, including exclusive exploitation rights, copyrights, moral rights,and mask works; (ii) trademark and trade name rights and similar rights; (iii) trade secret rights; (iv) patent rights and industrialproperty rights; and (v) other proprietary rights in intellectual property of every kind and nature.1.8“Exchange Act Person” means any natural person, entity or “group” (within the meaning of Section 13(d) or 14(d) of theSecurities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder), except that “Exchange ActPerson” will not include an underwriter temporarily holding securities pursuant to a registered public offering of such securities.1.9“Fields” means: 1.9.1the Oncology Field, which shall be exclusive as between the Parties (including their Affiliates) as provided inSection 2.3.1; 1.9.2the AM Field, which shall be non-exclusive as between the Parties as provided in Section 2.3.2; and 1.9.3any other companion diagnostics field mutually agreed by the Parties to be included in this Agreement with respectto the Parties’ development and commercialization of companion diagnostic assays in the PDP Field for useapplicable to such field(s) as provided in Section 2.3.2.1.10“HTG IP” means all Inventions that: (a) were made, developed, perfected, devised, conceived of or first reduced topractice by or on behalf of HTG, its employees, agents or contractors, individually or jointly, or jointly with third parties, prior to theEffective Date, or (b) were made, developed, perfected, devised, conceived of or first reduced to practice by or on behalf of HTG, itsemployees, agents or contractors, individually or jointly during the Term (defined below) and independent of Development workperformed under this Agreement, (c) are made, developed, perfected, devised, conceived of or first reduced to practice by or on behalfof HTG, its employees, agents or contractors, individually or jointly, during the Term in connection with the performance ofDevelopment work under this Agreement, and are not directly related to and specifically derived from any QIAGEN Property; or (d)were made, developed, perfected, devised, conceived of or first reduced to practice by or on behalf of QIAGEN or any of itsAffiliates, or their respective employees, agents or contractors, individually or jointly, during the Term either (i) with reference to oruse of HTG Property received by QIAGEN in connection with this Agreement, or (ii) in connection with the performance ofDevelopment work under this Agreement, in each case that directly relate to NPA Chemistry, which is defined as any practice,process, procedure, method, methodology, technique, technology, material or the like for targeted nuclease protection and subsequentdetection, by whatsoever means, of nucleic acid molecules, including DNA or RNA in whatsoever form existing in nature orotherwise, that need not (but, optionally, may) be substantially purified prior to nuclease protection. For the purposes of clarity, HTGIP shall not include any QIAGEN IP. 1.11“HTG Property” means: (i) HTG IP and (ii) HTG’s Confidential Information. Page 3 of 28 1.12“Inventions” means all inventions, discoveries, know-how, trade secrets, devices, apparatus, practices, processes,procedures, methods, methodologies, techniques, products, trade secrets, notes, data, written materials, findings, records anddocuments, works of authorship, software and any other Intellectual Property Rights, including improvements, enhancements, orderivatives to or of any of the foregoing, whether or not patentable or otherwise protectable by intellectual property rights. 1.13“Sponsor Project Agreement means an agreement entered into between QIAGEN and a Sponsor to conduct one ormore Projects. 1.14“Net Profits” means, as to a particular SOW, the following: (a) all total amounts paid by the applicable Sponsor toQIAGEN under the relevant Sponsor Project Agreement with respect to the conduct of the Project covered by such SOW, less (b) thesum of QIAGEN Project Costs plus HTG Project Costs. 1.15“Project” means a project covered by a particular Sponsor Project Agreement, under which QIAGEN, in partnership withHTG under this Agreement and an SOW, would develop a PDP Assay applicable to the Sponsor therapeutic covered by such Project,obtain needed regulatory approval of such PDP Assay, and would commercialize such PDP Assay throughout the Territory, afterregulatory approval, as a companion diagnostic assay for use in connection with the prescribing of applicable Sponsor therapeutic(s)that are the subject of such Project.1.16“Project Costs” means, with respect to a Party, the actual, direct costs incurred by the applicable Party to conduct itsDevelopment work under, and as mutually agreed in, a particular SOW. [***…]1.17“PDP Field” means use of diagnostic assays utilizing next generation sequencing (“NGS”) detection solely in connectionwith clinical applications of therapeutics, whether in connection with clinical trials of a therapeutic or in patient clinical settings (todetermine if the clinical trial participant or the patient is an appropriate candidate for the applicable therapy), and whether as acompanion diagnostic to a particular therapy or as a complementary diagnostic for the treatment pathway. All other uses of NGS-based assays, […***…] are expressly excluded from the PDP Field unless a particular Project […***…] expressly contemplate apreliminary feasibility study, which would otherwise constitute an Excluded Use, as an intermediate step in the clinical developmentprogram for the applicable therapeutic. […***…]. For clarification, PDP Field expressly excludes PCR and other non-NGS assaytechnology platforms or any other project or business between QIAGEN and its customers for QIAGEN’s bioinformatics “softwareas a service” business.1.18““Oncology Field” means the development and commercialization of companion diagnostic assays in the PDP Field foruse in connection with cancer therapeutics developed by Sponsors. ***Confidential Treatment Requested Page 4 of 28 1.19“QIAGEN IP” means all Inventions that (a) were made, developed, perfected, devised, conceived of or first reduced topractice by or on behalf of QIAGEN, its employees, agents or contractors, individually or jointly, or jointly with third parties, prior tothe Effective Date, or (b) were made, developed, perfected, devised, conceived of or first reduced to practice by or on behalf ofQIAGEN, its employees, agents or contractors, individually or jointly, during the Term and independent of Development workperformed under this Agreement; or (c) are made, developed, perfected, devised, conceived of or first reduced to practice by or onbehalf of QIAGEN, it employees, agents or contractors, individually or jointly, in connection with the performance of Developmentwork conducted under this Agreement, and are not directly related to and specifically derived from any HTG Property, or (d) weremade, developed, perfected, devised, conceived of or first reduced to practice by or on behalf of HTG or its Affiliate, or theirrespective employees, agents or contractors, individually or jointly, during the Term in connection with the performance ofDevelopment work under this Agreement that directly relate to or is specifically derived from any QIAGEN Property. For thepurposes of clarity, QIAGEN IP shall not include any HTG IP1.20“PDP Assay” means an NGS-based companion diagnostic assay developed by the Parties pursuant to a particularSOW. It is understood that, as provided in an applicable Statement of Work (and subject to any exceptions set forth therein,QIAGEN shall market and sell such assay under QIAGEN’s brand name and, if mutually agreed in the applicable Statement of Work,referencing a brand or technology of HTG if such HTG IP has been used. 1.21“Protocol” means, with respect to a particular Project, the protocol agreed to by QIAGEN and the applicable Sponsor tocover the Sponsor’s activities to support such Project, including delivery of relevant clinical samples, and conduct of clinical trials onits applicable therapeutic, involving use of the applicable PDP Assay being developed hereunder pursuant to such Project. 1.22“QIAGEN Property” means: (i) the QIAGEN IP; (ii) the QIAGEN Materials; and (iii) QIAGEN’s ConfidentialInformation. 1.23“QIAGEN Materials” means: (i) all test materials, controls, specimens or samples (“Samples”) identified in theapplicable Statement of Work, collected from subjects in accordance with the Protocol (defined above) applicable to a particularProject under an Sponsor Project Agreement; and (ii) all reagents, data and information relating to the Samples or the use of theSamples provided by QIAGEN and/or the applicable Sponsor to HTG for purposes of performing its Development work pursuant tosuch Statement of Work. 1.24“Statement of Work” or “SOW” means a statement of work, as provided in Section 3, which is executed by the Partiesto cover the performance by each Party of its respective Development activities in support of development of the PDP Assay inconnection with the related Project. Each such SOW shall be subject to and governed by the terms of this Agreement.1.25“Development” means the assay development activities undertaken by HTG and/or QIAGEN to develop a particularPDP Assay for a particular Project, as specified in detail in the applicable Statement of Work.1.26“Sponsor” shall mean any pharmaceutical company or companies that is party to a particular Sponsor Project Agreement,and is identified in the relevant Statement of Work, for whom QIAGEN (in partnership with HTG under this Agreement) is engagedin a Project. 1.27“Steering Committee” means the committee formed by the Parties under Section 2.4, to manage and oversee thenegotiation of Sponsor Project Agreements, the conduct of Development work under the Page 5 of 28 agreed SOWs, the manufacture of PDP Assays, and the commercialization by QIAGEN of approved PDP Assays (and relatedQIAGEN equipment and tools). 1.28“Territory” means worldwide.1.29Other capitalized terms used in this Agreement shall have the meanings elsewhere defined in this Agreement.2.COMPANION DIAGNOSTICS PARTNERSHIP2.1Overview of Collaboration. This Agreement shall serve as the master agreement for the collaboration of the Parties todevelop, pursuant to Projects initiated under Sponsor Project Agreements, and commercialize PDP Assays in the Fields for use solelyin the PDP Field. Under such collaboration, the Parties shall jointly seek and negotiate with potential Sponsors, to enter into SponsorProject Agreements under which specific agreed Projects will be conducted to develop PDP Assays in the Fields, which shall be runon QIAGEN sequencing equipment (often in connection with QIAGEN bioinformatics analysis programs, and other QIAGENproprietary tools, and/or with proprietary HTG tools and instruments as well), and which are to be used as companion diagnostics inthe PDP Field to support the applicable Sponsor’s therapeutic development and commercialization. The development of each PDPAssay, in connection with a Project under a particular Sponsor Project Agreement, shall be conducted by the Parties collaborativelyunder the applicable Statement of Work, as agreed to by the Parties as discussed in Section 3.2, in connection with QIAGEN agreeingto conduct such Project. It is expected that: (a) for each Project that relates to PDP Assays based primarily on HTG IP (such as,RNA-targeted assays, HTG shall conduct most of the preliminary Development work to create the a particular PDP Assay, (b) foreach Project that relates to PDP Assays based primarily on QIAGEN IP (such as, certain DNA-targeted assays), QIAGEN likely willconduct most of the preliminary Development work to create the a particular PDP Assay, and (c) once such work Development workis completed, the clinical and regulatory work needed to obtain needed regulatory approvals of the PDP Assay shall be conducted byQIAGEN in collaboration with the applicable Sponsor. It is also expected that HTG shall manufacture and supply to QIAGEN, forits use in clinical development and commercialization, the HTG-developed PDP Assays, pursuant to the manufacturing provisions ofa Supply Agreement to be entered into by the Parties as contemplated in Section 8.3, and that QIAGEN shall have the responsibilityfor marketing, selling and otherwise commercializing the PDP Assays. 2.2Sponsor Project Agreements; Projects. The Parties shall seek to identify, and shall negotiate with, appropriatepharmaceutical companies regarding entering into Sponsor Project Agreements with QIAGEN, covering one or more Projects todevelop PDP Assays for use in the PDP Field as companion diagnostic assays in connection with such company’s applicabletherapeutics. Each of the Parties commits to be fully cooperative with the other and to use good faith, diligent and commerciallyreasonable efforts, in all such activities seeking Sponsor Project Agreements. [***…] The Parties’ discussion and management of theSponsor Project Agreement negotiation process shall be primarily through the Steering Committee. ***Confidential Treatment Requested Page 6 of 28 2.3Exclusivity, Non-exclusivity and Related Matters. 2.3.1The Parties agree that their relationship under this Agreement regarding the Oncology Field shall be exclusive, asprovided herein, but subject to the exceptions below. Each Party agrees that if it (or any of its Affiliates) becomesaware of any pharmaceutical company that likely is interested in, or that the Party believes would be a goodcandidate for, entering into an agreement or other relationship to develop a PDP Assay in the Oncology Field(whether in development or in commercialization), such Party shall, subject to the appropriate consent of thepharmaceutical company, notify the other Party of such company and all relevant information regarding its cancertherapeutic and possible interest in a companion diagnostic deal. The Parties then shall promptly meet (mostappropriately through the Steering Committee) and discuss such opportunity and determine whether (and if so,how) to approach such company to discuss a possible Sponsor Project Agreement, as contemplated under Section2.2. If, as to any such pharmaceutical company, either (a) the Parties are not able to agree on the Key Terms of theSponsor Project Agreement with such company, or such company determines not to enter into a proposed SponsorProject Agreement, or (b) the company indicates [***…] or (c) as to a particular proposed Project, the Partiescannot agree on the terms of an appropriate SOW to cover the Development work needed for such proposedProject, then, in case of scenario (a) or (b), the Parties (including their Affiliates) shall not independently work withsuch pharmaceutical company in the Oncology field, and, in case of scenario (c), the Parties (including theirAffiliates) shall not independently work with such pharmaceutical company with respect to the Project (or anyproject that is substantially similar) in the Oncology Field; provided that, for clarification, with respect to scenario(c), QIAGEN and its Affiliates shall be unrestricted to work, in conformance with the terms and conditions of thisAgreement, with such pharmaceutical company on a QIAGEN-developed, DNA-based PDP Assay. In addition,for clarity, the above exclusivity commitments in the Oncology Field remain as to all other companies and possibleprojects in the Oncology Field. 2.3.2With respect to possible Projects in Fields other than the Oncology Field, the Parties acknowledge and agree thattheir relationship under this Agreement is non-exclusive. Any collaborative program of the Parties hereunder todevelop a PDP Assay for any Field other than the Oncology Field shall be undertaken only if the Parties agree, intheir sole and absolute discretion, on the applicable Sponsor Project Agreement and SOW for such program, withneither Party having an obligation so to agree. If either Party desires to engage in such a non-oncology programhereunder, it may request the other Party to consider the proposed program, and the Parties then will discussreasonably and in good faith the proposed program, including the applicable pharmaceutical company of interest inthe program, and the proposed Sponsor Project Agreement and SOW. If the Parties can agree on such items, theprogram will proceed hereunder as a Project under the applicable agreed Sponsor Project Agreement andSOW. Neither Party will have an obligation to agree to any such proposed program, or proposed Sponsor ProjectAgreement or SOW. ***Confidential Treatment Requested Page 7 of 28 2.4Steering Committee. Promptly after the Effective Date, the Parties shall form a committee (the “Steering Committee”),comprised of two representatives from each Party, appointed (and if applicable replaced) by each such Party. The Steering Committeeshall meet (either in person or by teleconference or videoconference, reasonably agreed by the Parties) at least once per calendarquarter, or more often as needed to address matters needing resolution in the collaboration hereunder between the Parties or arisingunder the SOWs or Development work. All representatives on the Steering Committee shall work in good faith and reasonably todiscuss and seek to find consensus on all matters raised at Steering Committee meetings and on all matters needed resolution ordecision. All decisions made and actions taken by Steering Committee shall require unanimous agreement by the representatives onthe Steering Committee. The Steering Committee shall have the responsibility to manage and oversee the Parties’ efforts to identifypossible Sponsors and negotiate and enter into Sponsor Project Agreements, the performance and activities under the Sponsor ProjectAgreements, each Party’s conduct of the Development work under the SOWs, compliance with the timelines in the SOW, and thedevelopment and commercialization of PDP Assays, and such other appropriate matters arising under the Parties’ collaboration underthis Agreement. However, for clarity, the Steering Committee shall not have any authority to modify, amend, interpret or waive anyterms or obligations under this Agreement.3.CONDUCT & RESPONSIBILITIES REGARDING STATEMENTS OF WORK3.1As this Agreement serves as the master agreement for the collaboration of the Parties for PDP Assay development in theFields, the Parties agree that such Development efforts shall be conducted in accordance with SOWs agreed to by the Parties underthis Article 3. With respect to each particular Project that the Parties agree to undertake, pursuant to the applicable Sponsor ProjectAgreement, to develop a PDP Assay in partnership with or in support of the applicable Sponsor, the Parties must agree to the SOWcovering such Development activities pursuant to the below terms, before such Project can be officially committed and undertakenunder such Sponsor Project Agreement. 3.2With respect to each Project, the parties shall (prior to QIAGEN committing to the Project under the applicable SponsorProject Agreement) discuss and in good faith use commercially reasonable efforts to agree on the terms and conditions of, and enterinto, an individual Statement of Work for such Project, and such SOW shall: (a) identify the Sponsor and the nature of the Project,describe in all reasonable detail the agreed upon Development plan for Development of the PDP Assay under such Project, includingsetting forth for each Party the specific agreed upon Development work to be performed by such Party in developing such PDP Assay,include any corresponding research protocols to be followed by HTG and clinical development protocols to be followed by QIAGEN,the budget for conducting such work, and set forth the compensation to be paid by QIAGEN to HTG with respect to such HTG’sperformance of such Development work and (if applicable) the amounts (out of payments by a Sponsor) to be retained by QIAGENas compensation for its Development work. A template Statement of Work is attached hereto as Exhibit A (with the understandingthat the Parties may vary from such template, as needed for any particular SOW). The Parties shall mutually discuss and in good faithuse commercially reasonable efforts to agree in writing to each Statement of Work, and upon the execution of any such Statement ofWork by the Parties, the Statement of Work shall be added to this Agreement as an exhibit, with each subsequent Statement of Workbeing numbered in sequential number (i.e. Exhibit A-1, A-2, A-3, etc.). HTG shall have no obligation to perform any Developmentwork on any particular proposed Project until the Parties mutually agree on the terms and conditions of and enter into one or moreStatement of Work covering such work, and the particular terms (including compensation) covering such Page 8 of 28 work. Each executed SOW shall be deemed incorporated into and made part of and governed by this Agreement.3.3Upon the Parties entering into a particular Statement of Work, each of HTG and QIAGEN agrees to perform theDevelopment work allocated to such Party under such SOW, in conformance with the terms and conditions of this Agreement, thecorresponding Statement of Work, including without limitation, the applicable protocol(s) set forth in such SOW, and/or any otheroperating procedures and/or specifications set forth in a Statement of Work. To the extent any terms or conditions of a Statement ofWork conflict with the terms and conditions of this Agreement, the terms and conditions of this Agreement shall control unlessotherwise specifically set forth in such Statement of Work. Any term or condition included in any purchase order issued by QIAGENin connection with a Statement of Work, or in any ​acknowledgement, invoice, or similar document issued by either Party that conflictswith the terms ​and conditions of this Agreement and/or the applicable Statement of Work will not apply to or govern the transactionresulting from the ​Statement of Work, unless both Parties expressly agree in writing to the particular conflicting term or ​condition, inwhich event the agreed term or condition will apply only with respect to that particular ​Statement of Work.​3.4Each Party shall perform the Development work allocated to it in an SOW using its own independent professionaljudgment in accordance with the applicable provisions of the Statement of Work, including without limitation, the applicableprotocol(s) and/or any other operating procedures and/or specifications set forth in the Statement of Work, in a timely andprofessional manner and in conformity with the highest applicable industry standards, Applicable Laws, regulations and guidelines forthe conduct of clinical research and governing protections of human subjects (to the extent applicable to such work), including but notlimited to, ICH GCP, 21 C.F.R. Part 50 and 21 C.F.R. Part 312.50, and such other standards of good clinical practice as are requiredby the U.S. Food and Drug Administration (“FDA”) and/or other regulatory authorities, and all applicable privacy and data protectionlaws, rules and regulations. The Development work of a Party shall be performed under the direction and supervision of such Party’semployee identified in the corresponding Statement of Work (the “Project Lead”, as to such SOW and the related Project).3.5Neither Party shall subcontract, delegate or otherwise assign (except as permitted in Section 15.4) the performance of anyof its Development work or any other of its obligations and responsibilities under this Agreement without the prior written approval ofthe other Party, such approval not to be unreasonably withheld, refused or delayed, or except as expressly contemplated in theapplicable SOW. If a Party has such approval, such Party shall be solely responsible for ensuring that its agreements with itssubcontractors are consistent with the terms of this Agreement, and such Party acknowledges and agrees that any such agreementswith its subcontractors must permit the other Party to audit and assess such subcontractors and/or their respective facilities andpersonnel as provided for in this Agreement. A Party’s approval of the use by the other Party of any subcontractor does not relieve theother Party of any of its obligations and responsibilities hereunder, and such other Party will at all times remain primarily liable for theperformance of its obligations responsibilities under this Agreement and/or the corresponding Statement of Work. Any breach orviolation of this Agreement and/or a corresponding Statement of Work by the subcontractor of a Party shall automatically be deemeda breach or violation by such Party of this Agreement and/or the corresponding Statement of Work.3.6Any agreed upon change or modification to this Agreement and/or a Statement of Work shall be set forth in writing andsigned by an authorized representative of the Parties (a “Change Order”). No such Page 9 of 28 change or modification shall be effective unless and until a Change Order is signed by an authorized representative of the Parties. 3.7Each Party’s Project Lead shall keep the other Party, and (if applicable) the relevant Sponsor, updated and consult withsuch other Party on a reasonably regular basis with respect to all the Development work being conducted by such Party, with respectto each corresponding Statement of Work. In addition, within sixty (60) days after execution of a Statement of Work, the Parties willform a joint Project team (the “Joint Project Team” or “JPT”), which shall be responsible to facilitate the operational tasks andprovide updates on the status and progress of the Development work being conducted under the Statement of Work. In the eventeither party becomes aware that a delay in the Development work is likely to occur, that party shall promptly notify the other party sothat the parties, through the JPT, can attempt to mitigate or prevent the delay. Each such JPT shall meet via telephone or videoconferences, on a regular basis, however, at least once per month, until the work conducted under the applicable SOW iscompleted. Each JPT shall be composed of not more than three (3) representatives appointed by each Party, with such representativeshaving appropriate experience and responsibility for the work under the applicable SOW. Each representative of a Party shall beappointed (and may be replaced at any time) by such Party upon prior written notice to the other Party. These representatives shallhave appropriate experience, knowledge, and ongoing familiarity with the particular Project in their then current phases. One (1)representative of HTG and one (1) representative of QIAGEN shall be designated as the co-chairs of the JPT (together the “JPTChairs”). All members designated by a Party shall have one (1) collective vote, to be cast by such Party’s JPT Chair, on all mattersbefore, or decided by, the JPT. Except as otherwise provided herein, all decisions of the JPT shall be made unanimously and the JPTmembers shall use reasonable, good faith efforts to reach agreement on all matters within its Statement of Work. If the JPT is unableto agree on any matter after good faith attempts to resolve such disagreement, then the JPT Chairs shall, refer the disagreement to ameeting between the Vice President, Business Development of QIAGEN and the Chief Executive Officer of HTG (“ExecutiveMeeting”), which meeting shall take place as soon as practicable, but in no event later than seven (7) days after the date of therelevant referral.3.8Each Party shall generate, shall implement appropriate measures to generate, complete and accurate records of allDevelopment work undertaken and all results and Inventions made while performing the Development work under each SOW(collectively, “Records”), and shall ensure that all Records are appropriately recorded in specific notebooks or electronic files and arearchived appropriately, during the performance of the Development work and upon the expiration or termination of thisAgreement. Records that are archived to durable media shall be refreshed at appropriate intervals to mitigate risk of data loss due tomedia degradation. Each Party shall disclose, on a regular basis, its Records to the other Party as needed for the other Party toconduct the respective Project.3.9Delays in Meeting Deadlines. In the event that: (i) HTG provides QIAGEN with notice of expected delay in performingthe Development work under a Statement of Work and HTG fails to provide prompt, reasonable assurance that it can mitigate or curesuch delay to QIAGEN’ s reasonable satisfaction; (ii) HTG gives QIAGEN reason to believe with substantial certainty that HTG willfail to meet an impending deadline and HTG fails to provide prompt, reasonable assurance upon request by QIAGEN; or (iii) HTGactually fails to meet a deadline expressly set forth in the Statement of Work, and the delay is likely to result in a failure to meet adeadline assigned by the Sponsor in the Sponsor Project Page 10 of 28 Agreement (each a “Project Delay”), then the Project Delay shall be immediately referred to the JPT and the Parties shall conductinformal resolution of the matter(s) as provided in Section 3.7. [***…] If the Parties are unable to resolve the Project Delay in amanner that would avoid a failure to meet a deadline assigned by the Sponsor, and Sponsor is unwilling to excuse the Project Delay,QIAGEN shall have the right, but not the obligation, to terminate the relevant Statement of Work. The Parties understand and agreethat in some cases, the Sponsor may demand alternative remedies in the event of a Project Delay that cannot be cured within areasonable period of time. Such remedies may include, by way of example, [***…] for completion of activities in a Project by Sponsoror its delegate. Any such […***…] shall be considered a “Key Term” requiring HTG’s consent prior to QIAGEN agreeing to suchterm in the Project Sponsor Agreement. For clarification, any such delay shall be excused to the extent it has been directly caused by aQIAGEN Failure. For purposes of this Agreement, a “QIAGEN Failure” means any failure or delay by QIAGEN to meet anydeadlines or perform any obligations explicitly assigned to QIAGEN in a Statement of Work.4.POSSIBLE TRANSFER OF MATERIALS4.1Though it is not contemplated that PDP Assay development by HTG will require access to QIAGEN Materials, if aparticular Project requires such access and the applicable SOW contemplates that QIAGEN will make such QIAGEN Materialsavailable to HTG for such work, then QIAGEN shall use reasonable efforts to transfer applicable QIAGEN Materials to HTG solelyfor use in the performance of the Development work of HTG under such SOWs, in strict accordance with the terms and conditions ofthis Agreement and/or the corresponding Statement of Work. Accordingly, QIAGEN hereby grants to HTG, during the Term andsubject to the terms and conditions set forth herein, a limited, nonexclusive, non-sublicensable, nontransferable (except as may beotherwise agreed to by the Parties in writing), royalty-free license to use the QIAGEN Materials for the sole purpose of performing theDevelopment work to be performed pursuant to the applicable Statement of Work. HTG shall: (i) use reasonable efforts to complywith all Applicable Laws relating to the QIAGEN Materials in performing its obligations and responsibilities under the applicableStatement of Work; (ii) use the QIAGEN Materials solely in connection with conducting the specific activities under the applicableStatement of Work and for no other purpose; and (iii) at all times retain possession of the QIAGEN Materials and not provide ortransfer any part of the QIAGEN Materials to any third party without QIAGEN’s prior written consent. HTG acknowledges thatnothing in this Agreement grants HTG any rights to use the QIAGEN Materials for any purpose other than in connection with theperformance of the Development work under an SOW. 4.2Except as otherwise set forth in a Statement of Work, QIAGEN shall be solely responsible for shipping and/or transportingthe QIAGEN Materials to HTG. QIAGEN shall bear all risk of loss or damage to the QIAGEN Materials up to their delivery toHTG. QIAGEN shall provide HTG all information in its possession regarding safety precautions for, and hazards of, any QIAGENMaterials transferred to HTG.4.3HTG shall, following their delivery by QIAGEN, use commercially reasonable efforts for the appropriate storage of theMaterials in compliance with Applicable Laws. In particular, HTG shall, following their delivery by QIAGEN, use commerciallyreasonable efforts to store and maintain the Materials, to the extent applicable, in accordance with Applicable Laws and current bestpractices with respect to the storage and maintenance of human samples. ***Confidential Treatment Requested Page 11 of 28 5.FINANCIAL TERMS5.1QIAGEN shall pay HTG for the Development work performed by (or on behalf of) HTG under this Agreement inaccordance with the fees, timelines, payment terms and budget included with each Statement of Work. Potential compensationarrangements will depend on the development and/or commercialization activities of the Parties, and shall be commercially reasonableas agreed by the Parties in good faith, and may include: 5.1.1Up-front payments as partial, advance payment for milestones; 5.1.2Milestone payments upon the achievement of milestones within the applicable SOW; or 5.1.3Any other arrangement mutually agreed by the Parties.5.2The Parties further agree that, HTG shall be entitled to a share (according to the below schedule) of Net Profits resultingfrom the conduct of a particular SOW, as follows: 5.2.1For development of PDP Assays that are primarily based on HTG IP, HTG shall receive 50% of the Net Profitsresulting from the SOW, taking into account and including all payments by the applicable Sponsor to QIAGEN inconnection with the SOW; 5.2.2For development of PDP Assays that are primarily based on QIAGEN IP, HTG shall receive 20% of the NetProfits resulting from the SOW, taking into account and including all payments by the applicable Sponsor toQIAGEN in connection with the SOW; 5.2.3For sales or other commercial transfer of HTG or QIAGEN instruments, tools or other products (excluding anyPDP Assay) to the Sponsor or its Affiliate or contractor, in connection with an SOW or Project, the Parties shallshare equally (50/50) all net revenue received by either Party for such sales, with “net revenue” equal to: (i) thenet sales resulting from such sale or transfer (total amounts received, less typical, standard deductions actuallyincurred for such sale or transfer (such as for taxes, returns, etc), less (ii) the Cost of Goods for the product sold ortransferred. 5.2.4On a calendar quarter basis, within 30 days after the end of each such quarter, the Parties shall meet and review allapplicable books of account and determine, for such quarter ended, what are the to-date Net Profits and netrevenues through the end of such quarter and shall, to the extent not previously shared between the Parties underthe above provisions, allocate and share such amounts per the above sharing percentages. For example, if aDevelopment milestone is met, under a particular Project, and the Sponsor has paid in a particular quarter amilestone payment for having achieved such milestone, then per the above the Parties will determine what amountof such milestone payment is Net Profit, by deducting the Development payment amounts owed to each Party forits Development work conducted up to meeting the milestone, and then the remaining Net Profit shall bedistributed (according to the above percentages) to each Party by QIAGEN, within 10 days of such determination.5.3Compensation to HTG shall be invoiced and paid in U.S. Dollars (“USD”). Page 12 of 28 5.4Financial Records and Audits. Each Party shall keep full, true, and accurate books of account regarding the Developmentwork conducted by (or on behalf of) such Party hereunder and of all revenues, costs and expenses received or incurred in relation toSOWs or the conduct thereof under each applicable Sponsor Project Agreement, as needed to calculate amounts reimbursablehereunder or the Net Profits or net revenues (as contemplated in Section 5.2) resulting from each SOW, for at least seven years afterthe creation of such records. Such records shall include all particulars reasonably necessary for the purpose of supporting the chargesfor Development work provided under this Agreement and the calculation of Net Profit and net revenues. At the expense of theParty, except as specified below, each Party has the right during the term to engage an independent public accountant to perform, onbehalf of such Party, an audit, conducted in accordance with United States Generally Accepted Accounting Principles (US GAAP), ofsuch books and records of the other Party reasonably necessary for the independent public accountant to support the charges for theaudited Party’s Development work, or the amount of Net Profits or net revenues (as applicable). Any such audit shall be conductedupon at least thirty (30) days’ prior written notice from the auditing Party to the other Party and shall be conducted during regularbusiness hours in such a manner as to not unnecessarily interfere with the auditing Party’s normal business activities. Such audit shallnot be performed more frequently than once per calendar year nor more frequently than once with respect to records covering anyspecific period of time. All information, data, documents and abstracts herein referred to shall be used only for the purpose of verifyingthe specific amounts (cost of Development work, or Net Profits, as applicable) consistent with the terms of this Agreement and shallbe treated as the Confidential Information of the audited Party and subject to the confidentiality obligations of this Agreement. As acondition to such audit, such auditor shall have executed a confidentiality agreement reasonably acceptable to the audited Partyregarding non-disclosure, non-use, and safeguarding of such information, data, documents and abstracts. Audit results shall be sharedby QIAGEN and HTG. If the audit reveals that the audited Party has not complied with the applicable financial provisions of thisAgreement, the audited Party shall compensate the other Party, within thirty (30) days of the audit report, for any amounts needed tocome into compliance, and if such compensation exceeds 5% of the amount actually owed, then the audited Party also will reimbursethe other Party for the reasonable fees of the accountant that performed the audit. 6.CONFIDENTIAL INFORMATION6.1Each Receiving Party acknowledges and agrees that it may have access to and/or receive the Disclosing Party’sConfidential Information during the Term of this Agreement. Each Receiving Party agrees to: (i) maintain the Disclosing Party’sConfidential Information in strict confidence; and (ii) not use the Disclosing Party’s Confidential Information or otherwise disclosesuch Confidential Information to any third party, except as authorized in this Agreement or as otherwise authorized by the DisclosingParty in writing. For clarification, QIAGEN may disclose particular HTG Confidential Information relating directly to a Project instrict confidence to the Sponsor identified in a Statement of Work for that Project, solely for Sponsor’s internal business use inconnection with its development of the Sponsor therapeutic that is the subject of such Project, and for no other use or purpose. EachSponsor shall be under appropriate confidentiality and limited use obligations, with respect to each Party’s Confidential Information,under terms of the applicable Sponsor Project Agreement.6.2Each Receiving Party will store the Disclosing Party’s Confidential Information in a secure location, and will handle andprotect the Disclosing Party’s Confidential Information with no less care than that with which it handles and protects its own highlyconfidential and proprietary information (but in no event less than a reasonable degree of care) to prevent the unauthorized use,publication or disclosure of the Disclosing Party’s Confidential Information. Page 13 of 28 6.3Each Receiving Party may only disclose the Disclosing Party’s Confidential Information: (i) with the prior written consentof the Disclosing Party; or (ii) to the Receiving Party’s employees, directors, agents, and/or professional advisors, and those of itsAffiliates (“Representatives”) having a bona fide need to know the Disclosing Party’s Confidential Information for purposes ofperforming the Receiving Party’s obligations and responsibilities under this Agreement and/or a Statement of Work and who arelikewise bound by written agreements with the Receiving Party including confidentiality and non-use terms no less onerous than thoseset forth herein.6.4The confidentiality and non-use obligations set forth in this Section 6 shall survive for the earlier of: (i) ten (10) years fromthe expiration or termination of this Agreement (except to the extent such Confidential Information includes the Disclosing Party’strade secrets, in which case the below Section 6.5 (ii) shall apply); or (ii) until the applicable portion of the Disclosing Party’sConfidential Information becomes public; provided, that such Confidential Information does not become public as a result of a breachof this Agreement.6.5A Receiving Party’s obligations and responsibilities with respect to the Disclosing Party’s Confidential Information as setforth in this Section 6 do not apply to particular information: 6.5.1That was known to the Receiving Party at the time it was obtained from the Disclosing Party, other than as a resultof the Receiving Party’s breach of any contractual obligation as shown by written evidence; 6.5.2That is acquired by the Receiving Party from a third party that is not under a contractual or other obligation not todisclose it; 6.5.3That is or becomes generally known or otherwise enters the public domain other than by the fault or omission ofthe Receiving Party; or 6.5.4That is independently developed by or on behalf of the Receiving Party without any use of any ConfidentialInformation of the Disclosing Party. 6.6Notwithstanding the above obligations, a Receiving Party may disclose particular Confidential Information of DisclosingParty to the extent such disclosure is required by compulsory judicial or administrative process or by law or regulation, provided thatthe Receiving Party first provides prompt written notice of such disclosure to the Disclosing Party and, to the extent reasonablyfeasible under the circumstances, cooperates with the Disclosing Party’s reasonable and lawful actions to avoid and/or minimize theextent of such disclosure.6.7Upon the expiration or termination of this Agreement, or at any time upon request of the Disclosing Party, the ReceivingParty will promptly return or destroy (at the Receiving Party’s option) all items and materials, including any copies, in its possession,custody, or control that contain any of the Disclosing Party’s Confidential Information. All notes or other work product containingthe Disclosing Party’s Confidential Information will be destroyed or archived with Receiving Party’s other confidential records, andupon written request of the Disclosing Party, such destruction or archival will be certified in writing to the Disclosing Party by anauthorized representative of the Receiving Party who supervised such destruction or archival. Notwithstanding this Section 6.7, theReceiving Party shall be entitled to retain one (1) archive copy of the Disclosing Party’s Confidential Information solely for purposesof demonstrating its compliance with the terms and conditions of this Agreement. The Receiving Party’s obligations of non-use andconfidentiality set forth in this Section 6.7 shall continue to apply to any such retained Confidential Information for the period setforth in Section 6.4 above. Page 14 of 28 6.8The terms of this Agreement will be treated as the Confidential Information of the Parties pursuant to this Article 6, exceptthat either Party may disclose the terms of this Agreement pursuant to litigation between the Parties to enforce, defend or interpretthis Agreement. Further, either Party may disclose such terms: (a) as, and only to the extent, required by Applicable Laws asdetermined by competent legal counsel advising the Disclosing Party; (b) to its directors; (c) in confidence to bona fide potentialacquirors or merger or strategic partners and their respective strategic professional advisors, all solely for diligence review inconnection with a potential transaction with HTG and who are likewise bound by written agreements with or other professional dutyto the Receiving Party including confidentiality and non-use terms no less onerous than those set forth herein. 6.9Without limiting the generality of any other provision hereof, neither Party shall publish (including without limitation,publishing articles and making presentations of any kind whatsoever) any confidential information regarding the Development workand/or any Sponsor’s clinical study, directly or indirectly, without the prior written consent of the other Party and shall not assist anythird party in the preparation of any such publishing without the prior written consent of the other Party.7.OWNERSHIP; INTELLECTUAL PROPERTY7.1As between the Parties, the HTG Property is and shall at all times remain the sole and exclusive property of HTG. Asbetween the Parties, the QIAGEN Property is and shall at all times remain the sole and exclusive property of QIAGEN. Except asexpressly provided for in this Agreement, no right or license, either express or implied, is granted by either Party to the other under anyIntellectual Property Right or by virtue of the disclosure of any QIAGEN Property and/or HTG Property (as applicable) to the otherParty under this Agreement, or otherwise. If HTG (or its Affiliates) invents, creates or develops any QIAGEN IP, HTG herebyassigns and agrees to assign to QIAGEN all its rights, title and interest in and to such QIAGEN IP. IF QIAGEN (or its Affiliate)invents, creates or develops any HTG IP, QIAGEN hereby assigns and agrees to assign to HTG all its rights, title and interest in andto such HTG IP. 7.2Each Party shall use reasonable efforts to indicate, in a summary manner in the relevant Statement of Work, any QIAGENIP or HTG IP (as the case may be) that it believes in good faith is likely to be utilized in the conduct of the Development work for aparticular Project. The Statement of Work shall contain (a) any licenses to any needed IP that shall be granted for purposes ofperforming the Development work under such SOW relating to the applicable Project and for HTG’s performing of applicablemanufacturing as contemplated in Section 8.3, and (b) a license to HTG IP as necessary for QIAGEN to complete any development,manufacture or commercialization of HTG-developed PDP Assays in the event of HTG’s bankruptcy or insolvency during the term ofthe SOW, subject to applicable law.7.3 Except for any improvements, modifications or enhancements related to the HTG IP or QIAGEN IP, the Parties shalljointly own any Intellectual Property Rights generated by either Party pursuant to a Statement of Work that are related directly andspecifically to biomarker selection for the applicable PDP Assay.7.4Upon request by a Party, the other Party will do all lawful acts, including, but not limited to, the execution of papers andlawful oaths and the giving of testimony, that may be necessary or desirable in the determination of the other Party to secure and/orperfect such Party’s Intellectual Property Rights as set forth in this Article 7.8.REGULATORY, COMMERCIALIZATION AND BRANDING8.1As between the Parties, with respect to regulatory approval matters for each HTG-developed PDP Assay, HTG shall beconsidered, the contract manufacturer for QIAGEN, and QIAGEN shall be considered the Legal Manufacturer of the PDPAssay. The Parties shall in good faith negotiate and use Page 15 of 28 commercially reasonable efforts to enter into a Quality Agreement with respect to the manufacture of a HTG-developed PDP Assayupon reasonable request by QIAGEN. For the avoidance of doubt, such Quality Agreement shall include guidelines and termsacceptable for QIAGEN’s regulatory and quality departments including without limitation pre-meetings and regular update meetingsto review and confirm product quality, documentation needs and timelines. QIAGEN shall have the right to utilize any of itsAffiliates in the performance of its manufacturing and commercialization obligations under this Agreement.8.2QIAGEN shall have responsibility for obtaining any regulatory approvals that may be required or appropriate for themarketing and sale of each PDP Assay in all jurisdictions throughout the Territory, unless otherwise agreed in a Statement of Work8.3QIAGEN shall have the sole rights and responsibility, using its commercially reasonable efforts, for the marketing,promotion, distribution and sale of each PDP Assay in all jurisdictions throughout the Territory, solely for use in the PDP Field. ForHTG-developed PDP Assays, QIAGEN shall purchase such HTG-developed PDP Assays, at the transfer price established in theapplicable SOW, pursuant to a Supply Agreement containing typical and commercially reasonable supply provisions, to be negotiatedin good faith and entered into by the Parties at the appropriate time (prior to commercialization of a HTG-developed PDP Assay). Thetransfer price shall be based on a “cost of goods sold plus mark-up” model, whereby the actual expectation of HTG for the mark-up isestimated to be [***…]%. Subject to any limitations in such Supply Agreement, it shall include, without limitation: (i) an obligation byHTG to supply the HTG-developed PDP Assay for as long as QIAGEN wishes to purchase such HTG-developed PDP Assay fromHTG, and (ii) an indemnification from HTG to QIAGEN for any third party claims for defective design or manufacture of such HTG-developed PDP Assay by HTG. For QIAGEN-developed PDP Assays, QIAGEN shall pay a royalty on the sale of each such PDPAssay, at a rate established in good faith in the applicable SOW.8.4Each PDP Assay shall be sold under the QIAGEN brand name; however, the Parties may also agree in a particularStatement of Work to acknowledge HTG’s technology or brand name in the marketing materials and product packaging for anyparticular PDP Assay.9.INDEMNIFICATION9.1HTG shall defend, indemnify and hold harmless QIAGEN, and its successors and assigns, and the officers, directors,employees, agents and representatives of the foregoing, (the “Qiagen Indemnitees”) from and against, any and all damages, losses,liabilities, claims, fines, penalties and expenses (including costs of investigation and defense and reasonable attorneys’ fees)(collectively, “Damages”) arising from any and all claims, proceedings, actions, arbitrations, hearings, investigations and suits(“Claims”) brought by any third party against a Qiagen Indemnitee to the extent such Claims result from or arise out of: (i) HTG’smaterial breach of this Agreement, including, with the exclusion of Section 10.1, a breach by HTG of its representations andwarranties set forth in Section 10 below; (ii) the material failure on the part of HTG to comply with Applicable Laws; or (iii) the grossnegligence or willful misconduct by HTG, its agents, employees or representatives, provided, however, that in no event shall HTG beobligated to indemnify, defend or hold harmless any Qiagen Indemnitees, for, from or against any Damages or Claims to the extentrelated to or arising from any subject matter or occurrence for which QIAGEN shall have the obligation to indemnify HTG underSection 9.2 below if such subject matter or occurrence were to give rise to a Claim against an HTG Indemnitee (as defined below). ***Confidential Treatment Requested Page 16 of 28 9.2QIAGEN shall defend, indemnify and hold harmless HTG and its successors and assigns, and the officers, directors,employees, agents and representatives of the foregoing, (the “HTG Indemnitees”) from and against any and all Damages arising fromany Claims against any HTG Indemnitee resulting from or arising out: (i) QIAGEN’s material breach of this Agreement, includingwithout limitation, a breach by QIAGEN of its representations and warranties set forth in Section 10 below; (ii) the material failure onthe part of QIAGEN to comply with Applicable Laws; (iii) the gross negligence or willful misconduct conduct by QIAGEN or itsAffiliate or their respective agents, employees or representatives; or (iv) claims for personal injury and/or death resulting from adefective design or manufacture of the QIAGEN Property.9.3A Party (the “Indemnified Party”) that asserts that it (or its related party) is owed an indemnity hereunder by the other Party(the “Indemnifying Party”) shall promptly notify the Indemnifying Party of the Claim for which such indemnity is believed to be owedand shall provide with such notice all information about such Claim and its basis that Indemnified Party is aware, provided that, thefailure of the Indemnified Party to promptly notify the Indemnifying Party of the Claim will not relieve the Indemnifying Party of itsduties under this Article 9 except to the extent that the Indemnifying Party is materially prejudiced by the delay. Provided that theIndemnifying Party undertakes and continues to prosecute in good faith the defense of such Claim, the Indemnified Party shall haveno right to tender an appearance in the proceedings around such Claim. Upon undertaking such defense, the Indemnifying Party shallhave full control over all the proceedings and filings involved in the defense of the Claim, including selection of counsel to tenderappearance for the Indemnifying Party and for the Indemnified Party. The Indemnified Party and all applicable indemnitees thereofshall provide full cooperation in the defense against such Claim, including promptly signing any and all reasonably necessarydocuments relating to such defense, including for the selection of counsel, such as a joint defense agreement, and providing all otherassistance and support including access to witnesses, documents and materials and appearing in hearings or defense meetings, andshall not unreasonably withhold its consent to conflict waivers. The Indemnified Party’s attorney’s fees shall be limited to thosenecessary for complying with the Indemnifying Party’s requests for support that necessarily call for the use of the Indemnified Party’scounsel (e.g., preparing a witness for deposition). The Party seeking indemnification hereunder (and its related indemnitee) shall notunreasonably withhold its approval of the settlement of any Claim covered by Section 9.1 or 9.2, as applicable, will cooperate withcounsel of the Indemnifying Party, and reserves the right to engage its own counsel to assist in the defense at the expense of theindemnifying party.10.COVENANTS; REPRESENTATIONS AND WARRANTIES 10.1HTG represents and warrants to QIAGEN that, as of the Effective Date, is has not entered into any contract or otherwiseagreed to terms with a third party that would prohibit, conflict with or otherwise restrict HTG’s ability to enter into this Agreement onthe terms and conditions herein. 10.2With regard to debarment and related matters: 10.2.1Each Party represents and warrants to the other Party that, as of the Effective Date, the representing Party hasnot, nor to its knowledge, have any of its employees or agents who may perform Development work pursuant tothis Agreement, ever been, currently, or are the subject of a proceeding that could lead to it/them becoming, asapplicable, a Debarred Entity or Debarred Individual, an Excluded Entity or Excluded Individual or a Convicted Page 17 of 28 Entity or Convicted Individual, nor are they listed on the FDA’s Disqualified/Restricted List. 10.2.2Each Party agrees that if, during the Term of this Agreement, it becomes, or to its knowledge, any of its employeesor agents working on its behalf, become or are the subject of a proceeding that could lead to that party becoming,as applicable, a Debarred Entity or Debarred Individual, an Excluded Entity or Excluded Individual or aConvicted Entity or Convicted Individual, or added to FDA’s Disqualified/Restricted List, the affected Party shallimmediately notify the other Party, and the other Party shall have the right to immediately terminate any affectedStatement of Work or, if all Statements of Work are affected, terminate this Agreement. 10.2.3For purposes of this section, the following definitions shall apply: 10.2.3.1A “Debarred Individual” is an individual who has been debarred pursuant to 21 U.S.C. § 335a (a) or (b). 10.2.3.2“Debarred Entity” is a corporation, partnership or association that has been debarred pursuant to 21U.S.C. § 335a (a) or (b). 10.2.3.3An “Excluded Individual” or “Excluded Entity” is: (i) an individual or entity, as applicable, who hasbeen excluded, debarred, suspended or is otherwise ineligible to participate in federal health careprograms such as Medicare or Medicaid by the Office of the Inspector General (OIG/HHS) of the U.S.Department of Health and Human Services pursuant to section 1128 of the Social Security Act (42U.S.C. § 1320a-7(b)); or (ii) is an individual or entity, as applicable, who has been excluded, debarred,suspended or is otherwise ineligible to participate in federal procurement and non-procurement programs,including those produced by the U.S. General Services Administration (GSA). 10.2.3.4A “Convicted Individual” or “Convicted Entity” is an individual or entity, as applicable, who has beenconvicted of a criminal offense that falls within the ambit of 42 U.S.C. § 1320a – 7(a), but has not yetbeen excluded, debarred, suspended or otherwise declared ineligible. 10.2.3.5“FDA’s Disqualified/Restricted List” is the list of clinical investigators restricted from receivinginvestigational drugs, biologics or devices pursuant to 21 C.F.R. Part 312.70.neither HTG nor any of itsemployees or agents10.3Each Party represents and warrants to the other that: (i) it is and will be at all times during the Term a valid legal entityexisting under the law of its state of incorporation with the power to own all of its properties and assets and to carry on its business asit is currently being conducted; and (ii) the execution and delivery of this Agreement has been duly authorized and no further approval,corporate or otherwise, is required in order to execute this binding Agreement. Page 18 of 28 10.4QIAGEN represents and warrants to HTG that: (i) it owns the QIAGEN Materials or otherwise has all necessary rights tolicense and/or transfer the QIAGEN Materials, or any other specimens or samples to HTG for the purposes contemplated herein andto otherwise grant the rights granted to HTG hereunder; (ii) QIAGEN and/or Sponsor has, in obtaining and maintaining theQIAGEN Materials or any other specimens or samples, complied with all Applicable Laws; (iii) QIAGEN has, or the Sponsor has,obtained all necessary favourable opinions from the relevant research ethics committees and all authorizations, consents anddocumentation from the relevant regulatory authorities required to conduct the Study; and (iv) QIAGEN and/or the Sponsor shall besolely responsible for the authorization and conduct of each clinical trial or study conducted in connection with a Project or SOW, andwill comply with ICH GCP, FDA regulations 21 C.F.R. 50 and 21 C.F.R. 312.50, or equivalent international standards, and such otherstandards of good clinical practice as are required by the FDA or such other regulatory authorities with jurisdiction where the Sampleswill be used in the Study, and all applicable privacy and data protection laws, rules and regulations.10.5In the performance of its obligations under any Statement of Work, each Party shall assign qualified personnel to performthe Development work in a professional and workmanlike manner in accordance with current industry standards.10.6NEITHER PARTY MAKES ANY REPRESENTATION OR WARRANTY NOT EXPRESSLY SET FORTH ABOVEIN THIS SECTION 10, AND EACH PARTY HEREBY EXPRESSLY DISCLAIMS ALL OTHER REPRESENTATIONS ANDWARRANTIES OF ANY KIND, WHETHER EXPRESS, IMPLIED, STATUTORY OR ARISING FROM COURSE OF TRADE,COURSE OF DEALING OR OTHERWISE, INCLUDING WITHOUT LIMITATION, THE IMPLIED WARRANTIES OFMERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, TITLE, USAGE, VALIDITY, AND/OR NON-INFRINGEMENT. 11.LIMITATION OF LIABILITY AND INSURANCE11.1EXCEPT FOR DAMAGES RESULTING FROM A BREACH OF THE CONFIDENTIALITY OBLIGATIONS SETFORTH IN ARTICLE 6 ABOVE, IN NO EVENT WILL EITHER PARTY BE LIABLE UNDER THIS AGREEMENT TO THEOTHER PARTY FOR ANY CONSEQUENTIAL, INCIDENTAL, INDIRECT, EXEMPLARY, SPECIAL OR PUNITIVEDAMAGES, INCLUDING ANY DAMAGES FOR BUSINESS INTERRUPTION, LOSS OF USE, DATA, REVENUE ORPROFIT, WHETHER ARISING OUT OF BREACH OF CONTRACT, TORT (INCLUDING NEGLIGENCE) OROTHERWISE, REGARDLESS OF WHETHER SUCH DAMAGES WERE FORESEEABLE AND WHETHER OR NOT THEPARTY ALLEGED TO BE LIABLE WAS ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. FOR CLARITY, THISSECTION 11.1 SHALL NOT LIMIT A PARTY’S INDEMNITY OBLIGATIONS UNDER ARTICLE 10. 11.2Insurance. During the term of this Agreement, each Party shall maintain the following insurance: 11.2.1General Liability with limits of not less than USD $2,000,000 per occurrence or claim and in the aggregateincluding coverage for personal injury and property damage; 11.2.2Workers Compensation as required by local statutory requirements; Page 19 of 28 11.2.3Auto Liability with limits of not less than USD $1,000,000 per occurrence or claim; and 11.2.4Umbrella Liability insurance with limits of not less than USD $5,000,000. Coverage shall be in excess of the abovecaptioned general liability and auto liability insurance coverage.12.AUDIT AND RECORD RETENTION12.1During the Term, each Party, may upon good cause shown and on reasonable prior notice to the other Party, at a mutuallyagreeable time during the other Party’s normal business hours, but no more than once per calendar quarter, assess such other Party’sfacilities and materials actually used in conducting its Development work hereunder, which may include applicable equipment, tools,processes, Project related output, and personnel, solely as necessary in order to assess the other Party’s performance of itsDevelopment work under this Agreement. All information and materials of the audited Party shall be deemed, and treated by auditingParty as, the Confidential Information of audited Party. 12.2Each Party will notify the other promptly (within five (5) business days) in the event of any actual or notified inspection bya regulatory or administrative authority of such Party’s facilities where Development work are being performed. Each Party willpromptly provide the other with copies of any correspondence from or to the regulatory authorities such as the FDA, related to anysuch inspection, including but not limited to any FDA 483s or warning letters, as well as any other correspondence with agovernmental agency, in each case solely to the extent that is reasonably likely that such actions will affect the suitability of such Partyto continue performing the applicable Development work. In such event, the Party will consult with and allow the other Party and/orthe applicable Sponsor (if permitted under the applicable Sponsor Project Agreement) to review and comment on any responses madeby such Party to the regulatory and/or governmental authority relating to such inspection in advance of such responses beingsubmitted.12.3Each Party will ensure that its Project Lead and his or her personnel host and/or attend any such regulatory orgovernmental audit or inspection, and further assist in the preparation therefor and fully cooperate with the respective regulatoryand/or administrative authority, the other Party, Sponsor (if applicable, and permitted by the applicable Sponsor Project Agreement)and/or its or their representatives. All personnel time and resources necessary to complete such an audit shall be provided by theaudited party on a time and materials basis, to be reimbursed by the other party unless the audit demonstrates that the audited partyhas materially breached its obligations under this Agreement with respect to its Development work obligations, in which case, theaudited party shall bear all cost and expense for such audit.12.4Each Party shall use commercially reasonable efforts to promptly remedy, at its own cost and expense, with competentproof, any audit findings made by any regulatory or administrative authority, the other Party, Sponsor (if applicable) and/or its or theirrepresentatives that relate to defects in such Party’s facilities where the Development work is being performed, the Party’sDevelopment work, and/or such Party’s non-compliance with this Agreement and/or Applicable Laws. Page 20 of 28 13.TERM AND TERMINATION; LOSS OF EXCLUSIVITY13.1This Agreement shall commence as of the Effective Date and shall continue for a period of five (5) years thereafter, unlesssooner terminated under this Article 13 (the “Term”). 13.2QIAGEN shall have the right to suspend or terminate, as applicable, a Statement of Work if the relevant Project issuspended or terminated by the applicable Sponsor. HTG shall cooperate with and support QIAGEN in the management of suchsuspension, including maintaining resources and materials for a reasonable period of time to enable a timely re-start. The Parties mayagree to specific terms for Project suspensions in the relevant Statement of Work. 13.3Change of Control.13.3.1In the event that either Party undergoes a Change of Control during the Term, it shall providewritten notice of such Change of Control to the other Party at least seven (7) days prior to the expected closing of the Change ofControl transaction.13.3.2Either Party shall have the right to terminate this Agreement and any or all Statements of Work inthe event of a Change of Control of itself or the other Party. 13.3.2.1 In the event a Party terminates this Agreement in the event of a Change of Control ofitself, it shall provide notice to the other Party within thirty (30) days after the closing of the Change of Control transaction andmake a payment of USD $2,000,000 to the other Party within such 30-day notice period. 13.3.2.2 In the event a Party wishes to terminate this Agreement in the event of a Change ofControl involving the other Party, it shall provide notice to the other Party within the later of (i) forty-five (45) days of its receipt ofthe notice described in Section 13.3.1 regarding the Change of Control and (ii) thirty (30) days after the closing of the Change ofControl. 13.4All Fields, including the Oncology Field, shall become non‑exclusive in the same manner as the Fields described in Section2.3.2, 60 days following receipt of written notice by one Party to the other Party citing this section, in the event that: 13.4.1the Parties have not signed at least [***…] SOW pursuant to a Sponsor Project Agreement by the first anniversaryof the Effective Date; or 13.4.2the Parties have not signed, pursuant to a Sponsor Project Agreement, an aggregate of (i) at least […***…] SOWsor Project Sponsor Agreements with gross proceeds of at least USD $[…***…] by the second anniversary of theEffective Date, or (ii) at least […***…] SOWs or Project Sponsor Agreements with gross proceeds of at least USD$[…***…] or more by the third anniversary of the Effective Date.13.5This Agreement and/or a Statement of Work may be terminated by either Party, as follows: 13.5.1Either Party may terminate this Agreement in the event the other Party materially breaches the terms of thisAgreement and, provided that the non-breaching Party shall have given the breaching Party written notice of suchbreach, setting forth the details of the breach, and the breaching Party shall have not cured such breach withinthirty (30) days after receipt of such notice; or ***Confidential Treatment Requested Page 21 of 28 13.5.2Either Party may terminate a Statement of Work in the event the other Party materially breaches the terms of suchStatement of Work and, provided that the non-breaching Party shall have given the breaching Party written noticeof such breach, setting forth the details of the breach, and the breaching Party shall have not cured such breachwithin thirty (30) days after receipt of such notice; or 13.5.3Either Party may terminate the applicable Statement(s) of Work or, if all Statements of Work are affected, thisAgreement, upon written notice to the other, in the event the performance of one or more Statements of Work by aParty is prevented or delayed by reason of (a) a force majeure event affecting a material obligation that persists formore than sixty (60) consecutive days, or (b) inability to obtain, in a reasonable time, appropriate needed regulatoryapprovals in a country material to the Sponsor, or (c) there are intellectual property infringement or violation issuesthat have enjoined the sale of the applicable PDP Assay, or QIAGEN sequencing equipment, and such issuescannot be overcome by commercially reasonable efforts to the satisfaction of either Party; or 13.5.4A Party may terminate this Agreement, upon written notice to the other Party effective immediately, in the eventthe other Party enters bankruptcy proceedings, ceases to operate in the normal course of business, or generally failsto pay, or admits in writing its inability to pay its debts as they mature, or applies for, consents to, or acquiesces inthe appointment of a trustee, receiver or other custodian for the other Party or for a substantial part of the propertyof the other Party, or makes a general assignment for the benefit of creditors, or in the absence of such application,consent or acquiescence, a trustee, receiver or other custodian is appointed for the other Party or for a substantialpart of the property of the other Party, or any bankruptcy, reorganization, debt arrangement or other proceedingunder any bankruptcy or insolvency law, or any dissolution or liquidation proceeding, is instituted by or against theother Party, or any warrant of attachment or similar legal process is issued against any substantial part of theproperty of the other Party.13.6Consequences of Termination. Upon the termination or expiration of this Agreement, the Parties shall have thefollowing rights, obligations and responsibilities: 13.6.1The termination or expiration of this Agreement shall not automatically result in the termination of any then-activeStatement of Work. In the event of the expiration of this Agreement and/or the termination by either Party of thisAgreement pursuant to Section 13.5 above, any then-active Statement of Work shall continue in effect, unlessearlier terminated, as permitted pursuant to this Section 13, for the duration of such Statement of Work and theterms of this Agreement shall survive only to the extent necessary to govern such Statement of Work until itscompletion or termination. 13.6.2Following HTG’s receipt or giving of a termination notice or otherwise upon the expiration or termination aStatement of Work or this Agreement, HTG shall, within sixty (60) days thereof, invoice QIAGEN for all amountsowed for the Development work performed prior to the effective date of termination or expiration under thisAgreement and/or the terminated Statement of Work, as applicable, for which HTG has not yet been paid. HTGshall additionally avoid, to the extent reasonably practicable, incurring Page 22 of 28 additional costs and expenses on Development work for the terminated SOW during the closeout or winding downperiod. 13.6.3Upon the termination or expiration of this Agreement and/or a Statement of Work, and except as otherwise setforth in Section 13.6.3, all rights and obligations of the Parties under this Agreement and/or the terminated orexpired Statement of Work shall immediately and automatically cease. Upon the termination or expiration of thisAgreement and/or a Statement of Work, each Party shall immediately deliver to the other, at the other Party’sexpense, all of the other Party’s Confidential Information, and (if applicable) any remaining QIAGEN Materials inHTG’s possession, that have not yet been delivered to such other Party as of the date of such expiration ortermination. Within sixty (60) days after the expiration or earlier termination of a Statement of Work for anyreason, HTG will further provide to QIAGEN a final report detailing all results obtained pursuant to itsDevelopment work under such Statement of Work. 13.6.4The expiration or termination of this Agreement and/or a Statement of Work for any reason or no reason will notrelease any Party from any obligation that matured prior to the effective date of such expiration ortermination. Sections of this Agreement that by their nature prescribe continuing rights and obligations will surviveuntil their purposes are fulfilled, including Section 6 (Confidential Information), Section 7 (Ownership; IntellectualProperty), Section 9 (Indemnification), Section 11 (Limitation of Liability) Section 13.6 (Consequences ofTermination), Section 14 (Non-Solicitation), and Section 15 (General Provisions).14.NON-SOLICITATION14.1During the Term, and for a period of two (2) years thereafter (provided that, in the event of a breach by either Party of anycovenant set forth in this Section 14.1, the term of such restriction will be extended by the period of the duration of such breach)neither Party shall, on its own behalf or on behalf of any third party, directly solicit for employment any person who was an employeeor independent contractor of the other Party during the Term of this Agreement, without the prior written consent of the otherParty. For clarification, the foregoing shall not prohibit a party from employing any such person who (i) contacts the party on his orher own initiative without any direct solicitation by or encouragement from the party, (ii) ceases to be employed by the other partyprior to any direct solicitation by or encouragement or (iii) responds to a general employment advertisement or other generalsolicitation or recruitment effort not specifically aimed at employees of the other party. Page 23 of 28 15.GENERAL PROVISIONS15.1Notices. All notices or other communications given hereunder shall be in writing, shall be signed by an officer of theParty sending such notice or other communication, and shall be delivered by hand, by overnight courier, by electronic mail or byfacsimile (provided that the sending Party does not have reason to know that the electronic mail or facsimile was not received by theother Party), all delivery charges prepaid and addressed to the Parties as follows: To HTG: HTG Molecular Diagnostics, Inc.. Attn: Chief Executive Officer 3430 E. Global Loop Tucson, AZ 85706 To QIAGEN:QIAGEN Legal Department 19300 Germantown Road Germantown, MD 20874 All such notices and communications will be effective on the date delivered, if in person, on the date of the postmark of that notice orcommunication if by courier. Either Party may change its address by giving notice of that change to the other Party.15.2Waivers. Neither Party will be deemed to have waived any of its rights under this Agreement until it has signed a writtenwaiver of those rights, or except as provided by Applicable Law. Without limiting the preceding, no failure or delay by either Party inexercising any rights, powers or remedies under this Agreement will operate as a waiver of any such right, power or remedy, except asprovided by Applicable Law, and no waiver will constitute a waiver of any other provision, breach, right or remedy, nor will anywaiver constitute a continuing waiver or be effective except for the specific instance and for the specific purpose given.15.3Amendments. If either Party wishes to modify this Agreement or a Statement of Work, the Parties will confer in goodfaith to determine the desirability of such modification. No modification, change or amendment to this Agreement or an SOW will beeffective until a written amendment is signed by both Parties.15.4Assignment. Neither Party shall have the right or ability to assign or transfer any interest in or delegate its obligationsunder this Agreement and/or a Statement of Work without the prior written approval of the other Party, which shall not beunreasonably withheld, except that each Party shall have the right, solely with notice to the non-assigning Party, to assign thisAgreement to a successor in interest in connection with a merger or acquisition or sale of all or substantially all of the assigning Party’sassets, subject to Section 13.3. This Agreement will be binding on and inure to a Party’s permitted successors and assigns.15.5Severability. The terms and conditions of this Agreement are severable. If any term or condition of this Agreement isrendered invalid or unenforceable by any law or regulation, or declared null and void Page 24 of 28 by any court of competent jurisdiction, that part will be reformed, if possible, to conform to the law, and if reformation is not possible,that part will be deleted in such jurisdiction only and the remainder of the terms and conditions of this Agreement as well as theinvalid or unenforceable term or condition in all jurisdictions where valid and enforceable will remain in full force and effect, unlessenforcement of this Agreement without the invalid or unenforceable term or condition would be grossly inequitable under thecircumstances or would frustrate the primary purpose of this Agreement.15.6Remedies. The Parties acknowledge and agree that a material breach of this Agreement by the other Party may result inimmediate, irreparable and continuing damage to the non-breaching Party for which there will be no adequate remedy at law; and agreethat in the event of any such material breach or violation or any threatened or intended breach or violation of this Agreement, the non-breaching Party, its successors and assigns, will be entitled to seek temporary, preliminary and permanent injunctive relief and/orrestraining orders enjoining and restraining such breach or violation or such threatened or intended breach or violation and/or otherequitable relief in addition to such other and further relief as provided for at law and in equity.15.7Agreement to Arbitrate Disputes 15.7.1Prior to arbitration, the Parties agree to and shall seek to conduct informal resolution of any issues or disputes thatarise under this Agreement (a “Dispute”). Such informal process may be initiated with written notice of one Partyto the other, describing the Dispute with reasonable particularity, and the other Party shall follow with a writtenresponse within ten (10) calendar days of receipt of such notice. Each Party shall promptly designate an executivewith requisite authority to resolve the noticed Dispute. The informal procedure shall commence within 10calendar days of the date of response. If the Dispute is not resolved within 30 business days of the date ofcommencement of the procedure, either Party may proceed to arbitration as set forth below to resolve theDispute. 15.7.2The Parties agree that any Dispute between the Parties, and including any claim by either Party against any agent,employee, successor, or assign of the other Party, related to or arising under this Agreement, including any disputeor issue as to performance of a Party’s obligations or breach of this Agreement or as to the validity or applicabilityof this arbitration clause, shall be resolved by binding arbitration administered by the American ArbitrationAssociation under its Commercial Arbitration Rules, except as where those rules are intentionally varied by theParties herein or pursuant to mutual written agreement. The parties expressly agree that the arbitration shall beconducted in Denver, CO, in the English language, and shall be governed by Delaware law. For good or equitablecause shown, the prevailing party shall be entitled to reimbursement of its reasonable attorney fees and arbitrationcosts by the other Party, according to the relative success on the merits, as assessed by the arbitrator(s) in sucharbitration. The arbitration award shall be final, absent manifest error or fraud. 15.7.3The Parties are entering into this arbitration agreement in connection with a transaction involving interstatecommerce. Accordingly, this arbitration agreement, and any proceedings Page 25 of 28 thereunder, shall be governed by the Federal Arbitration Act (“FAA”) 9 USC 1-16. Any award by the arbitratormay be entered as a judgment in any court having jurisdiction. 15.7.4The foregoing agreement to arbitrate shall not restrict either Party’s remedies or ability at any time to seekequitable relief for a breach or threatened breach of: (i) either Party’s confidentiality obligations; or (ii) the misuse,misappropriation or infringement of either Party’s Intellectual Property Rights. 15.8Independent Contractor; No Agency. Neither Party will be deemed to be the employee, representative, agent, jointventurer or partner of the other Party for any purpose. Neither Party has the authority to obligate or bind the other, or to incur anyliability on behalf of the other, nor to direct the employees of the other.15.9Interpretation. Both Parties have had the opportunity to have this Agreement reviewed by their attorneys. Therefore, norule of construction or interpretation that favors or disfavors either Party will apply to the interpretation of this Agreement. Instead,this Agreement will be interpreted according to the fair meaning of its terms. The captions or headings of this Agreement are forconvenience of reference only. They will not limit or otherwise affect the meaning or interpretation of any provision of thisAgreement. The words “includes” and “including” are not limiting in any way and mean “includes without limitation” or “includingwithout limitation.” The word “person” includes individuals, corporations, partnerships, limited liability companies, co-operatives,associations and other natural and legal persons. The term “and/or” means each and all of the persons, words, provisions or itemsconnected by that term; i.e., it has a joint and several meaning. The word “will” is a synonym for the word “shall”. All attachments tothis Agreement are a part of and are incorporated in this Agreement.15.10Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an originaland all of which will together be deemed to constitute one agreement. The Parties agree that the execution of this Agreement byexchanging pdf signatures, and/or by industry standard electronic signature software, shall have the same legal force and effect as theexchange of original signatures. In any proceeding arising under or relating to this Agreement, each Party hereby waives any right toraise any defense or waiver based upon execution of this Agreement by means of such electronic signatures or maintenance of theexecuted agreement electronically.15.11Force Majeure. Except for in connection with QIAGEN’s obligation to make payments to HTG under Section 4 above,no Party will be liable for, or will be considered to be in breach of or in default under this Agreement on account of, any delay orfailure to perform any obligation under this Agreement to the extent such delay or failure is due to causes or conditions that arebeyond such Party’s reasonable control and that such Party is unable to overcome through the exercise of commercially-reasonableefforts. If any force majeure event occurs, the affected Party will give prompt written notice to the other Party and will usecommercially-reasonable efforts to minimize the impact of the event.15.12Entire Agreement. With respect to the subject matter hereof, this Agreement, including any Statement(s) of Work andExhibits, is the entire agreement between the Parties and supersedes all prior discussions, representations, warranties and agreements,both written and oral between the Parties.15.13Integration. This Agreement sets forth the entire understanding of the Parties with respect to the subject matter hereof,supersedes all existing agreements between them concerning such subject matter. [Signature Page Follows] Page 26 of 28 IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be executed as of the date set forth herein bytheir duly authorized representatives. HTG MOLECULAR DIAGNOSTICS, INC. “HTG” QIAGEN MANCHESTER LIMITED “QIAGEN” By: /s/ Timothy B. Johnson By:/s/ Douglas Liu Timothy B. Johnson Douglas LiuPresident and Chief Executive Officer Print Name SVP Global Operations Title November 16, 2016 November 16, 2016Date Date Page 27 of 28CONFIDENTIAL EXHIBIT A Statement of Work Template THIS STATEMENT OF WORK (this “SOW”) is made and entered into as of _________, 20___ (the “SOW EffectiveDate”) by and between HTG Molecular Diagnostics, Inc. (“HTG”) and QIAGEN Manchester Limited (“QIAGEN”). This SOW ismade a part of, and shall be governed by, the terms and conditions of the Master Assay Development, Commercialization andManufacturing Agreement (the “MSA”) executed between the Parties dated as of November ___, 2016. In the event of a conflictbetween the terms and conditions of this SOW and those of the MSA, the MSA shall govern unless otherwise expressly providedherein. 1.Term 2.Description of Project 3.Definitions 4.Specific Details of Development Work 5.Milestones and Deadlines 6.Compensation Provisions (including Transfer Price calculation) 7.Clinical Supply Manufacturing Provisions 8.Intellectual Property and Licenses 9.Project Suspension and TerminationIN WITNESS WHEREOF, HTG and QIAGEN have executed this SOW by their respective officers hereunto dulyauthorized on the day and year written below. HTG MOLECULAR DIAGNOSTICS QIAGEN Manchester Limited By:[template – not for signature] By:[template – not for signature] Name: Name: Title: Title: Date: Date: Exhibit 10.24 Execution CopySTOCK PURCHASE AGREEMENTThis Stock Purchase Agreement (this “Agreement”) is made as of November 16, 2016 (the “Effective Date”), by andbetween HTG Molecular Diagnostics, Inc., a Delaware corporation (the “Company”), and QIAGEN North American Holdings,Inc., a California corporation (the “Purchaser”).Whereas, the Company wishes to sell to the Purchaser, and the Purchaser wishes to purchase from the Company, shares ofthe Company’s common stock, par value $0.001 per share (“Common Stock”), on the terms and subject to the conditions set forth inthis Agreement.AgreementIn consideration of the mutual covenants contained in this Agreement, and for other good and valuable consideration, thereceipt and sufficiency of which are hereby acknowledged, the Company and the Purchaser hereby agree as follows:1.DefinitionsCapitalized terms used and not otherwise defined herein shall have the respective meanings set forth below:1.1“Action” has the meaning set forth in Section 3.12.1.2“Affiliate” means, with respect to any Person, another Person that controls, is controlled by or is under commoncontrol with such Person. A Person shall be deemed to control another Person if such Person possesses, directly or indirectly, thepower to direct or cause the direction of the management and policies of such Person, whether through the ownership of votingsecurities, by contract or otherwise. Without limiting the generality of the foregoing, a Person shall be deemed to control anotherPerson if any of the following conditions is met: (i) in the case of corporate entities, direct or indirect ownership of more than 50% ofthe stock or shares having the right to vote for the election of directors, and (ii) in the case of non-corporate entities, direct or indirectownership of more than 50% of the equity interest with the power to direct the management and policies of such non-corporateentities. For the purposes of this Agreement, in no event will the Purchaser or any of its Affiliates be deemed Affiliates of theCompany or any of its Affiliates, nor will the Company or any of its Affiliates be deemed Affiliates of the Purchaser or any of itsAffiliates.1.3“Board Approval” means, with respect to a specified matter or action, the approval of such matter or action by atleast a majority of the members of the Company’s Board of Directors at a duly authorized meeting of the Company’s Board ofDirectors or pursuant to an action taken by unanimous written consent of the Company’s Board of Directors.1.4“Change of Control” will occur if: (a) any Third Party acquires directly or indirectly the beneficial ownership ofany voting security of the Company, or if the percentage ownership of such person or entity in the voting securities of the Company isincreased through stock redemption, cancellation or other recapitalization, and immediately after such acquisition  or increase such Third Party is, directly or indirectly, the beneficial owner of voting securities representing more than 50% of the totalvoting power of all of the then outstanding voting securities of the Company; (b) a merger, consolidation, recapitalization, orreorganization of the Company is consummated, other than any such transaction which would result in stockholders or equity holdersof the Company immediately prior to such transaction owning at least 50% of the outstanding securities of the surviving entity (or itsparent entity) immediately following such transaction; (c) the stockholders or equity holders of the Company approve a plan ofcomplete liquidation of the Company, or an agreement for the sale or disposition by the Company of all or substantially all of theCompany’s assets, other than any such sale or disposition to an Affiliate of the Company or to an entity of which more than 50% of thecombined voting power of its voting securities are beneficially owned by stockholders of the Company in substantially the sameproportions as their beneficial ownership of the outstanding voting securities of the Company immediately prior to such sale ordisposition; or (d) individuals who, as of the date hereof, constitute the Board of Directors of the Company (the “Incumbent Board”)cease for any reason to constitute at least a majority of the Board of Directors of the Company (provided, however, that any individualbecoming a director subsequent to the date hereof whose election or appointment, or nomination for election by the Company’sstockholders, was approved or recommended by a vote of at least a majority of the directors then comprising the Incumbent Boardshall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any suchindividual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election orremoval of directors or other actual or threatened solicitation of proxies or consents by or on behalf of any person other than the Boardof Directors of the Company).1.5“Closing” means the First Tranche Closing or the Second Tranche Closing, as applicable.1.6“Closing Date” means the First Tranche Closing Date or the Second Tranche Closing Date, as applicable.1.7“Common Stock Equivalents” means any options, warrants or other securities or rights convertible into orexercisable or exchangeable for, whether directly or following conversion into or exercise or exchange for other options, warrants orother securities or rights, shares of Common Stock (collectively, “Convertible Securities”), or any swap, hedge or similar agreement orarrangement that transfers in whole or in part, the economic risk of ownership of, or voting or other rights of, shares of Common Stock.1.8“Disposition” or “Dispose of” means any (i) pledge, sale, contract to sell, sale of any option or contract topurchase, purchase of any option or contract to sell, grant of any option, right or warrant for the sale of, or other disposition of ortransfer of any shares of Common Stock, or any Common Stock Equivalents, including, without limitation, any “short sale” or similararrangement, or (ii) swap or any other agreement or any transaction that transfers, in whole or in part, directly or indirectly, theeconomic consequence of ownership of shares of Common Stock, whether any such swap or transaction is to be settled by delivery ofsecurities, in cash or otherwise.1.9“Evaluation Date” has the meaning set forth in Section 3.8.2. 1.10“Exchange Act” means the United States Securities Exchange Act of 1934, as amended, and the rules andregulations promulgated thereunder.1.11“FDA” has the meaning set forth in Section 3.17(a).1.12“FDA Law and Regulations” has the meaning set forth in Section 3.17(a).1.13“First Tranche Closing” means the closing of the sale and purchase of the First Tranche Shares.1.14“First Tranche Closing Date” means the Effective Date or such other date or time as the Company and thePurchaser may mutually agree.1.15“First Tranche Purchase Price” means the product of (x) the number of shares of Common Stock to bepurchased under this Agreement at the First Tranche Closing, as determined in accordance with the definition of “First TrancheShares” set forth below, multiplied by (y) the Share Price.1.16“First Tranche Shares” means the number of shares of Common Stock to be purchased under this Agreementat the First Tranche Closing, which shall be equal to (i) $2,000,000 divided by (ii) the Share Price, rounded down to the nearest wholenumber; provided that in no event shall such number of shares exceed 19.9% of the issued and outstanding shares of Common Stockof the Company as of immediately after the First Tranche Closing.1.17“Governmental Authority” means any court, agency, authority, department, regulatory body or otherinstrumentality of any government or country or of any national, federal, state, provincial, regional, county, city or other politicalsubdivision of any such government or country or any supranational organization of which any such country is a member.1.18“HTG Qualified Financing” means the first financing consummated by the Company after the Effective Datein which the Company sells shares of Common Stock and/or shares of Preferred Stock for an aggregate purchase price of at least$12,000,000, before deduction of any underwriting or similar commissions, compensation or concessions paid or allowed by theCompany in connection with such transaction and without deduction of any expenses payable by the Company, and including, for theavoidance of doubt, any such sale to an Affiliate of the Company that is done on an arm’s length basis.1.19“Intellectual Property Rights” has the meaning set forth in Section 3.14.1.20“Liens” means a lien, charge, pledge, security interest, encumbrance, right of first refusal, preemptive right orother restriction.1.21“Lock-Up Term” has the meaning set forth in Section 8.2.1.22“Material Adverse Effect” means a material adverse effect upon the business, assets, properties, operations,condition (financial or otherwise) or results of operations of the3. Company and its Subsidiaries, taken as a whole, or in the Company’s ability to perform its obligations under this Agreement.1.23“Permitted Transferee” means (i) an Affiliate of the Purchaser that is wholly owned, directly or indirectly, bythe Purchaser, or (ii) an Affiliate of the Purchaser that wholly owns, directly or indirectly, the Purchaser.1.24“Person” means any individual, limited liability company, partnership, firm, corporation, association, trust,unincorporated organization, government or any department or agency thereof or other entity, as well as any syndicate or group thatwould be deemed to be a Person under Section 13(d)(3) of the Exchange Act.1.25“Qualified Financing Purchase Price” means (i) with respect to any sale of shares of Common Stock in theHTG Qualified Financing, the price per share at which shares of Common Stock are sold, (ii) with respect to any sale of shares ofPreferred Stock in the Qualified Financing, the price per share determined by dividing (a) the aggregate purchase price paid for suchshares of Preferred Stock by (b) the aggregate number of shares of Common Stock issuable upon conversion of such shares ofPreferred Stock (determined as of the closing of the HTG Qualified Financing without regard to any limitations on conversion thatrelate to Nasdaq Listing Rule 5635 or a holder’s beneficial ownership of Common Stock), reduced to reflect the reasonable value ofpreferential rights of such shares of Preferred Stock over the Common Stock, and (iii) with respect to any sale of shares of bothCommon Stock and Preferred Stock in the HTG Qualified Financing, the weighted average of the Qualified Financing Purchase Pricedetermined in accordance with the foregoing clauses (i) and (ii), respectively, based on aggregate purchase price for shares of CommonStock and Preferred Stock sold in such HTG Qualified Financing.1.26“SEC” means the United States Securities and Exchange Commission.1.27“SEC Filings” means all reports, forms, statements and other documents filed by the Company with the SECsince May 5, 2015 pursuant to the requirements of the Exchange Act, including material filed pursuant to Section 13(a) or 15(c) of theExchange Act, in each case, together with all exhibits, supplements, amendments and schedules thereto, and all documentsincorporated by reference therein.1.28“Second Tranche Closing” means the closing of the sale and purchase of the Second Tranche Shares.1.29“Second Tranche Closing Date” has the meaning set forth in Section 2.4.1.30“Second Tranche Purchase Price” means the product of (i) the number of Second Tranche Shares, asdetermined in accordance with the definition set forth below, multiplied by (ii) the Qualified Financing Purchase Price.1.31“Second Tranche Shares” means the number of shares of Common Stock to be purchased under thisAgreement at the Second Tranche Closing, which shall be equal to (i) $2,000,000 divided by (ii) the Qualified Financing PurchasePrice, rounded down to the nearest whole number; provided that in no event shall such number of shares, collectively with the4. number of First Tranche Shares, exceed (A) if and only if the weighted-average price per share of Common Stock purchased at theFirst Tranche Closing and to be purchased at the Second Tranche Closing would be less than the greater of (x) the most recentlyreported consolidated closing bid price of the Common Stock (as reported on the Nasdaq Stock Market) prior to the execution of thisAgreement and (y) the Company’s most recently reported net tangible book value per share prior to the date of this Agreement (the“Nasdaq 20% Limitation”), 19.9% of the issued and outstanding shares of Common Stock of the Company as of immediately prior tothe execution of this Agreement and (B) 19.9% of the issued and outstanding shares of Common Stock of the Company as ofimmediately after the issuance of the Second Tranche Shares (the “Nasdaq Change of Control Limitation” and together with theNasdaq 20% Limitation, the “Nasdaq Limitations”). In the event either the Nasdaq 20% Limitation or Nasdaq Change of ControlLimitation applies, the number of shares of Common Stock that shall constitute the Second Tranche Shares shall be appropriatelyreduced to the maximum number of shares of Common Stock that may be issued under this Agreement in the Second Tranche Closingwithout violating either of the Nasdaq Limitations.1.32“Securities Act” means the United States Securities Act of 1933, as amended, and the rules and regulationspromulgated thereunder.1.33“Shares” means the number of shares of Common Stock to be purchased under this Agreement, which shallinclude the First Tranche Shares and the Second Tranche Shares, as applicable.1.34“Shares of Then Outstanding Common Stock” means, at the time of determination, the then issued andoutstanding shares of Common Stock, as well as all capital stock that, as a result of any stock split, stock dividend or reclassification ofCommon Stock, is distributable (without any further action by the Company’s Board of Directors or stockholders) on a pro rata basisto all holders of Common Stock.1.35“Share Price” means $2.40.1.36“Standstill Term” has the meaning set forth in Section 7.2.1.37“Subsidiary” means any subsidiary of the Company and shall, where applicable, also include any direct orindirect subsidiary of the Company formed or acquired after the date hereof.1.38“Third Party” means any Person (other than a Governmental Authority) other than the Purchaser, the Companyor any of their respective Affiliates.2.Agreement to Sell and Purchase.2.1Authorization of Shares. The Company has authorized the sale and issuance to the Purchaser of the Sharesunder the terms and conditions of this Agreement.2.2Sale and Issuance of Common Stock. On the basis of the representations and warranties herein, and upon theterms and subject to the conditions hereof, the Purchaser agrees to purchase from the Company, and the Company agrees to issue andsell to the Purchaser, (i) at5. the First Tranche Closing, the First Tranche Shares at a price per share equal to the Share Price, and (ii) at the Second TrancheClosing, the Second Tranche Shares at a price per share equal to the Qualified Financing Purchase Price.2.3First Tranche Closing. Subject to the satisfaction or waiver of the conditions set forth herein, the First TrancheClosing shall take place on the First Tranche Closing Date at the offices of Cooley llp, 4401 Eastgate Mall, San Diego, California92121 or at such other place as the Company and the Purchaser may agree in writing. At the First Tranche Closing, the Companyshall instruct its transfer agent to credit the First Tranche Shares in book entry form for the benefit of, and in the name of, the Purchaseragainst the Purchaser’s payment to the Company of the First Tranche Purchase Price by wire transfer of immediately available funds inaccordance with wire instructions provided by the Company to the Purchaser prior to the First Tranche Closing. 2.4Second Tranche Closing. Subject to the satisfaction or waiver of the conditions set forth herein, the SecondTranche Closing shall take place at the offices of Cooley llp, 4401 Eastgate Mall, San Diego, California 92121, or at such other placeas the Company and the Purchaser may agree in writing, on the date on which the HTG Qualified Financing closes (the date on whichthe Second Tranche Closing actually occurs being referred to herein as the “Second Tranche Closing Date”), but in no event laterthan six months following the First Tranche Closing Date. At the Second Tranche Closing, the Company shall instruct its transferagent to credit the Second Tranche Shares in book entry form for the benefit of, and in the name of, the Purchaser against thePurchaser’s payment to the Company of the Second Tranche Purchase Price by wire transfer of immediately available funds inaccordance with wire instructions provided by the Company to the Purchaser prior to the Second Tranche Closing. 3.Representations, Warranties and Covenants of the Company.The Company hereby represents and warrants to the Purchaser as of each applicable Closing Date as follows:3.1Organization, Good Standing and Qualification. The Company is a corporation duly organized, validlyexisting and in good standing under the laws of the State of Delaware and has all requisite corporate power and authority to carry on itsbusiness. The Company is duly qualified to transact business as a corporation and is in good standing in each jurisdiction in which thefailure so to qualify would have a Material Adverse Effect upon the Company’s ability to perform its obligations under this Agreement.Neither the Company nor any Subsidiary is in violation nor default of any of the provisions of its respective certificate or articles ofincorporation, bylaws or other organizational or charter documents.3.2Authorization; Due Execution. The Company has the requisite corporate power and authority to enter into thisAgreement and to perform its obligations under the terms of this Agreement. All corporate action on the part of the Company, itsofficers, directors and, if applicable, stockholders, necessary for the authorization, execution and delivery of this Agreement has beentaken. This Agreement has been duly authorized, executed and delivered by the Company and, upon due execution and delivery bythe Purchaser, this Agreement will be a valid and binding obligation of the Company, enforceable against the Company in accordance6. with its terms, except as enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws affectingcreditors’ rights generally or by equitable principles.3.3Subsidiaries. All of the direct and indirect subsidiaries of the Company are set forth on Schedule 3.3. TheCompany owns, directly or indirectly, all of the capital stock or other equity interests of each Subsidiary free and clear of any Liens,and all of the issued and outstanding shares of capital stock of each Subsidiary are validly issued and are fully paid, non-assessable andfree of preemptive and similar rights to subscribe for or purchase securities. If the Company has no subsidiaries, all other references tothe Subsidiaries in this Agreement shall be disregarded.3.4Capitalization. Except as may be set forth in the SEC Filings, the Company has not issued any capital stocksince its most recently filed periodic report under the Exchange Act, other than pursuant to the exercise of employee stock optionsunder the Company’s stock option plans, the issuance of shares of Common Stock to employees pursuant to the Company’s employeestock purchase plans and pursuant to the conversion and/or exercise of Common Stock Equivalents outstanding as of the date of themost recently filed periodic report under the Exchange Act. Except as may be set forth in the SEC Filings, no Person has any right offirst refusal, preemptive right, right of participation, or any similar right to participate in the transactions contemplated by thisAgreement. Except as may be set forth in the SEC Filings, there are no outstanding options, warrants, scrip rights to subscribe to, callsor commitments of any character whatsoever relating to, or securities, rights or obligations convertible into or exercisable orexchangeable for, or giving any Person any right to subscribe for or acquire any shares of Common Stock, or contracts, commitments,understandings or arrangements by which the Company or any Subsidiary is or may become bound to issue additional shares ofCommon Stock or Common Stock Equivalents. The issuance and sale of the Shares will not obligate the Company to issue shares ofCommon Stock or other securities to any Person (other than the Purchaser) and will not result in a right of any holder of Companysecurities to adjust the exercise, conversion, exchange or reset price under any of such securities. All of the outstanding shares ofcapital stock of the Company are duly authorized, validly issued, fully paid and nonassessable, have been issued in compliance with allapplicable federal and state securities laws, and none of such outstanding shares was issued in violation of any preemptive rights orsimilar rights to subscribe for or purchase securities. Assuming the accuracy of the Purchaser’s representations and warranties set forthin Sections 4.3 and 4.4 hereof, no further approval or authorization of any stockholder, the board of directors of the Company or othersis required for the issuance and sale of the Shares. Except as may be set forth in the SEC Filings, there are no stockholdersagreements, voting agreements or other similar agreements with respect to the Company’s capital stock to which the Company is aparty or, to the knowledge of the Company, between or among any of the Company’s stockholders.3.5Valid Issuance of Stock. The Shares, when issued, sold and delivered in accordance with the terms of Section 2hereof for the consideration and on the terms and conditions set forth herein, will be duly and validly authorized and issued, fully paidand nonassessable, free and clear of all Liens (other than any Liens that may be created by or imposed upon the Purchaser or itsAffiliates), and, based in part upon the representations of the7. Purchaser in this Agreement, will be issued in compliance with all applicable United States federal and state securities laws. 3.6No Defaults. There exists no default under the provisions of any instrument or agreement evidencing, governingor otherwise relating to any material indebtedness of the Company, or with respect to any other agreement, a default under whichwould have a material adverse effect upon the Company’s ability to perform its obligations under this Agreement.3.7SEC Filings; Financial Statements. The Company has timely filed with the SEC all SEC Filings. The SECFilings were prepared in accordance with and, as of the date on which each such SEC Filing was filed with the SEC, complied in allmaterial respects with the applicable requirements of the Exchange Act. None of such SEC Filings, at the time filed, contained anuntrue statement of a material fact, or omitted to state a material fact required to be stated therein or necessary in order to make thestatements therein, in light of the circumstances under which they were made, not misleading. The financial statements of theCompany included in the SEC Filings comply in all material respects with applicable accounting requirements and the rules andregulations of the SEC with respect thereto as in effect at the time of filing. Such financial statements have been prepared inaccordance with United States generally accepted accounting principles applied on a consistent basis during the periods involved(“GAAP”), except as may be otherwise specified in such financial statements or the notes thereto and except that unaudited financialstatements may not contain all footnotes required by GAAP, and fairly present in all material respects the financial position of theCompany and its consolidated Subsidiaries as of and for the dates thereof and the results of operations and cash flows for the periodsthen ended, subject, in the case of unaudited statements, to normal year-end audit adjustments (which are not expected to be materialeither individually or in the aggregate).3.8Sarbanes-Oxley; Internal Accounting Controls. The Company and the Subsidiaries are in compliance withany and all applicable requirements of the Sarbanes-Oxley Act of 2002 that are effective and applicable to the Company as of the datehereof, and any and all applicable rules and regulations promulgated by the SEC thereunder that are effective as of the date hereof andas of the applicable Closing Date. The Company and its Subsidiaries maintain a system of internal accounting controls sufficient toprovide reasonable assurance that: (i) transactions are executed in accordance with management’s general or specific authorizations, (ii)transactions are recorded as necessary to permit preparation of financial statements in conformity with GAAP and to maintain assetaccountability, (iii) access to assets is permitted only in accordance with management’s general or specific authorization, and (iv) therecorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken withrespect to any differences. The Company and its Subsidiaries have established disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) for the Company and its Subsidiaries and designed such disclosure controls andprocedures to ensure that information required to be disclosed by the Company in the reports it files or submits under the Exchange Actis recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. The Company’scertifying officers have evaluated the effectiveness of the disclosure controls and procedures of the Company and its Subsidiaries as ofthe end of the period covered by the most recently filed periodic report under the Exchange Act (such date, the “EvaluationDate”). The Company presented in its most recently filed periodic report under the Exchange Act the conclusions of the certifyingofficers8. about the effectiveness of the disclosure controls and procedures based on their evaluations as of the Evaluation Date. Since theEvaluation Date, there have been no changes in the internal control over financial reporting (as such term is defined in the ExchangeAct) of the Company and its Subsidiaries that have materially affected, or is reasonably likely to materially affect, the internal controlover financial reporting of the Company and its Subsidiaries.3.9Governmental Consents. No consent, approval, order or authorization of, or registration, qualification,designation, declaration or filing with any Governmental Authority on the part of the Company is required in connection with theconsummation of the transactions contemplated by this Agreement, except for such notices required or permitted to be filed withcertain United States state and federal securities commissions after the Effective Date, which notices (if required) will be filed on atimely basis.3.10No Conflict. The Company’s execution, delivery and performance of this Agreement does not violate (i) anyprovision of the Company’s Amended and Restated Certificate of Incorporation or Amended and Restated Bylaws, each as amendedas of the date hereof (copies of which have been filed with the SEC), (ii) any provision of any order, writ, judgment, injunction,decree, determination or award to which the Company is a party or by which it is bound, or (iii) to the Company’s knowledge, anylaw, rule or regulation currently in effect having applicability to the Company.3.11Material Changes; Undisclosed Events, Liabilities or Developments. Since the date of the latest auditedfinancial statements included within the SEC Filings, except as specifically disclosed in a subsequent SEC Filing filed prior to the datehereof: (i) there has been no event, occurrence or development that has had or that would reasonably be expected to result in a MaterialAdverse Effect, (ii) the Company has not incurred any liabilities (contingent or otherwise) other than (A) trade payables and accruedexpenses incurred in the ordinary course of business consistent with past practice and (B) liabilities not required to be reflected in theCompany’s financial statements pursuant to GAAP or disclosed in filings made with the SEC, (iii) the Company has not altered itsmethod of accounting, (iv) the Company has not declared or made any dividend or distribution of cash or other property to itsstockholders or purchased, redeemed or made any agreements to purchase or redeem any shares of its capital stock and (v) theCompany has not issued any equity securities to any officer, director or Affiliate, except pursuant to existing Company stock optionplans timely reported pursuant to Section 16 of the Exchange Act at least one (1) trading day prior to the date that this representation ismade. Other than with respect to that certain Master Assay Development, Commercialization and Manufacturing Agreement, innegotiation between the parties or executed on or about the date hereof, by and between QIAGEN Manchester Limited and theCompany (the “Development Agreement”), the Company does not have pending before the SEC any request for confidentialtreatment of information. Except for the issuance of the Shares contemplated by this Agreement and the entry into the DevelopmentAgreement, no event, liability, fact, circumstance, occurrence or development has occurred or exists or is reasonably expected to occuror exist with respect to the Company or its Subsidiaries or their respective businesses, properties, operations, assets or financialcondition, that would be required to be disclosed by the Company under applicable securities laws at the time this representation ismade or deemed made that has not been publicly disclosed at least one (1) trading day prior to the date that this representation is made.9. 3.12Litigation. Except as may be set forth in the SEC Filings, there is no action, suit, inquiry, notice of violation,proceeding or investigation pending or, to the knowledge of the Company, threatened against or affecting the Company, anySubsidiary or any of their respective properties before or by any court, arbitrator, governmental or administrative agency or regulatoryauthority (federal, state, county, local or foreign) (collectively, an “Action”) which (i) adversely affects or challenges the legality,validity or enforceability of any of the transactions contemplated by this Agreement or the Shares or (ii) would, if there were anunfavorable decision, have or reasonably be expected to result in a Material Adverse Effect. Neither the Company nor any Subsidiary,nor any director or officer thereof, is or has been the subject of any Action involving a claim of violation of or liability under federal orstate securities laws or a claim of breach of fiduciary duty. There has not been, and to the knowledge of the Company, there is notpending or contemplated, any investigation by the SEC involving the Company or any current director or officer of the Company. TheSEC has not issued any stop order or other order suspending the effectiveness of any registration statement filed by the Company orany Subsidiary under the Exchange Act or the Securities Act.3.13Tax Status. The Company and its Subsidiaries each (i) has made or filed all United States federal, state andlocal income and all foreign income and franchise tax returns, reports and declarations required by any jurisdiction to which it issubject, (ii) has paid all taxes and other governmental assessments and charges that are material in amount, shown or determined to bedue on such returns, reports and declarations and (iii) has set aside on its books provision reasonably adequate for the payment of allmaterial taxes for periods subsequent to the periods to which such returns, reports or declarations apply. There are no unpaid taxes inany material amount claimed to be due by the taxing authority of any jurisdiction, and the officers of the Company or of any Subsidiaryknow of no basis for any such claim.3.14Intellectual Property. The Company and its Subsidiaries have, or have rights to use, all patents, patentapplications, trademarks, trademark applications, service marks, trade names, trade secrets, inventions, copyrights, licenses and otherintellectual property rights and similar rights as described in the SEC Filings as necessary or required for use in connection with theirrespective businesses (collectively, the “Intellectual Property Rights”). Except as would not reasonably be expected to have aMaterial Adverse Effect, neither the Company nor any of its Subsidiaries has received a notice (written or otherwise) that any of, theIntellectual Property Rights has expired, terminated or been abandoned, or is expected to expire or terminate or be abandoned, withinthree (3) years from the date of this Agreement. Except as disclosed in the SEC Filings or with respect to a matter occurring after thedate hereof which has been promptly disclosed in writing to the Purchaser prior to the Second Tranche Closing, neither the Companynor any of its Subsidiaries has received, since the date of the latest audited financial statements included within the SEC Filings, awritten notice of a claim or otherwise has any knowledge that the Intellectual Property Rights violate or infringe upon the rights of anyPerson, and to the knowledge of the Company, all such Intellectual Property Rights are enforceable and there is no existinginfringement by another Person of any of the Intellectual Property Rights. The Company and its Subsidiaries have taken reasonablesecurity measures to protect the secrecy, confidentiality and value of all of their intellectual properties, except where failure to do sowould not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.10. 3.15Compliance. Except as may be set forth in the SEC Filings, neither the Company nor any Subsidiary: (i) is indefault under or in violation of (and no event has occurred that has not been waived that, with notice or lapse of time or both, wouldresult in a default by the Company or any Subsidiary under), nor has the Company or any Subsidiary received notice of a claim that itis in default under or that it is in violation of, any indenture, loan or credit agreement or any other agreement or instrument to which it isa party or by which it or any of its properties is bound (whether or not such default or violation has been waived), (ii) is in violation ofany judgment, decree or order of any court, arbitrator or other governmental authority or (iii) is or has been in violation of any statute,rule, ordinance or regulation of any governmental authority, including without limitation all foreign, federal, state and local lawsrelating to taxes, environmental protection, occupational health and safety, product quality and safety and employment and labormatters, except in each case as would not have or reasonably be expected to result in a Material Adverse Effect.3.16Regulation M Compliance. The Company has not, and to its knowledge no one acting on its behalf has, (i)taken, directly or indirectly, any action designed to cause or to result in the stabilization or manipulation of the price of any security ofthe Company to facilitate the sale or resale of any of the Shares, (ii) sold, bid for, purchased, or paid any compensation for solicitingpurchases of, any of the Shares, or (iii) paid or agreed to pay to any Person any compensation for soliciting another to purchase anyother securities of the Company in violation of Regulation M of the Exchange Act.3.17FDA; FDCA.(a)The Company and its Subsidiaries are conducting and have conducted their business and operations inmaterial compliance with the Federal Food, Drug, and Cosmetic Act, 21 U.S.C. §301 et. seq., and all applicable regulationspromulgated by the United States Food and Drug Administration (“FDA”) (collectively, the “FDA Law and Regulations”) andcomparable foreign regulatory or governmental authorities.(b)Except as set forth on Schedule 3.17(b) or as may be set forth in an applicable SEC Filing, neither theCompany nor its Subsidiaries has received any notice or communication from the FDA alleging noncompliance with any applicableFDA Law and Regulation. The Company and its Subsidiaries are not subject to any enforcement, regulatory or administrativeproceedings by the FDA or any comparable foreign regulatory or governmental authority and, to the knowledge of the Company, nosuch proceedings have been threatened. There is no civil, criminal or administrative action, suit, demand, claim, complaint, hearing,investigation, demand letter, warning letter, proceeding or request for information pending against Company or its Subsidiaries, and, tothe knowledge of the Company, the Company and its Subsidiaries have no liability (whether actual or contingent) for failure to complywith any FDA Law and Regulation or any law or regulation of a comparable foreign regulatory or governmental authority. There isno act, omission, event, or circumstance of which the Company or its Subsidiaries have knowledge that would reasonably be expectedto give rise to or lead to any such action, suit, demand, claim, complaint, hearing, investigation, notice, demand letter, warning letter,proceeding or request for information or any such liability. There has not been any violation of any FDA Law and Regulation or anylaw or regulation of a comparable foreign regulatory or governmental authority by the Company or its Subsidiaries in11. their product development efforts, submissions, record keeping and reports to FDA or a comparable governmental authority that wouldreasonably be expected to require or lead to investigation, corrective action or enforcement, regulatory or administrative action thatwould result in a Material Adverse Effect. To the knowledge of Company, there are no civil or criminal proceedings relating to theCompany or its Subsidiaries or any Company or Subsidiary employee which involve a matter within or related to the FDA’sjurisdiction or the jurisdiction of any comparable governmental authority.3.18Regulatory Permits. Except as set forth in the SEC Filings, the Company and the Subsidiaries possess allcertificates, authorizations and permits issued by the appropriate federal, state, local or foreign regulatory authorities necessary toconduct their respective businesses as described in the SEC Filings, except where the failure to possess such permits would notreasonably be expected to result in a Material Adverse Effect, and neither the Company nor any Subsidiary has received any notice ofproceedings relating to the revocation or modification of any such permit.3.19Foreign Corrupt Practices; Office of Foreign Assets Control. Neither the Company nor any Subsidiary, norto the knowledge of the Company or any Subsidiary, any agent or other person acting on behalf of the Company or any Subsidiary,has: (i) directly or indirectly, used any funds for unlawful contributions, gifts, entertainment or other unlawful expenses related toforeign or domestic political activity, (ii) made any unlawful payment to foreign or domestic government officials or employees or toany foreign or domestic political parties or campaigns from corporate funds, (iii) failed to disclose fully any contribution made by theCompany or any Subsidiary (or made by any person acting on its behalf of which the Company is aware) which is in violation of lawor (iv) violated in any material respect any provision of the Foreign Corrupt Practices Act of 1977, as amended. Neither the Companynor any Subsidiary nor, to the Company's knowledge, any director, officer, agent, employee or Affiliate of the Company or anySubsidiary is currently subject to any U.S. sanctions administered by the Office of Foreign Assets Control of the U.S. TreasuryDepartment.3.20Accountants. The Company’s independent registered accounting firm is identified in the SEC Filings. To theknowledge of the Company, such accounting firm: (i) is a registered public accounting firm as required by the Exchange Act and (ii)will express its opinion with respect to the financial statements to be included in the Company’s Annual Report for the fiscal yearending December 31, 2016.3.21Insurance. The Company and the Subsidiaries are insured by insurers of recognized financial responsibilityagainst such losses and risks and in such amounts as are prudent and customary in the businesses in which the Company and theSubsidiaries are engaged. Neither the Company nor any Subsidiary has been notified that it will not be able to renew its existinginsurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary tocontinue its business without a significant increase in cost.3.22Investment Company. The Company is not, and is not an Affiliate of, and immediately after receipt of paymentfor the Shares, will not be or be an Affiliate of, an “investment company” within the meaning of the Investment Company Act of 1940,as12. amended. The Company shall conduct its business in a manner so that it will not become an “investment company” subject toregistration under the Investment Company Act of 1940, as amended.3.23Disclosure. Except with respect to the material terms and conditions of the transactions contemplated by thisAgreement and of the transactions contemplated by the Development Agreement, neither the Company nor any other Person acting onits behalf has provided the Purchaser or its agents or counsel with any information that it believes constitutes or might constitutematerial, non-public information. All of the disclosure furnished by or on behalf of the Company to the Purchaser regarding theCompany and its Subsidiaries, their respective businesses and the transactions contemplated hereby is true and correct and does notcontain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements made therein,in light of the circumstances under which they were made, not misleading. The Company acknowledges and agrees that the Purchaserdoes not make or has made any representations or warranties with respect to the transactions contemplated hereby other than thosespecifically set forth in Section 4 hereof.4.Representations, Warranties and Covenants of the Purchaser.The Purchaser hereby represents and warrants to the Company as of each Closing Date as follows:4.1Organization and Good Standing. The Purchaser is an entity duly organized, validly existing and in goodstanding under the laws of its jurisdiction of incorporation or organization, and has all requisite corporate power and authority to carryon its business.4.2Authorization; Due Execution. The Purchaser has the requisite corporate power and authority to enter into thisAgreement and to perform its obligations under the terms of this Agreement. All corporate action on the part of the Purchaser, itsofficers, directors and shareholders necessary for the authorization, execution and delivery of this Agreement have been taken. ThisAgreement has been duly authorized, executed and delivered by the Purchaser, and, upon due execution and delivery by theCompany, this Agreement will be a valid and binding obligation of the Purchaser, enforceable against the Purchaser in accordancewith its terms, except as enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws affectingcreditors’ rights generally or by equitable principles.4.3No Current Ownership in the Company. Other than the Shares acquired or to be acquired under thisAgreement, the Purchaser does not own any shares of Common Stock or any Common Stock Equivalents as of immediately prior tothe applicable Closing.4.4Purchase Entirely for Own Account. The Shares to be purchased by the Purchaser at the applicable Closingare being acquired for investment for the Purchaser’s own account, not as a nominee or agent, and not with a view to the resale ordistribution of any part thereof, and that the Purchaser has no present intention of selling, granting any participation in, or otherwisedistributing the same. The Purchaser does not have any contract, undertaking, agreement or arrangement with any person to sell,transfer or grant participation to such person or to any third party, with respect to the Shares, if issued.13. 4.5Disclosure of Information. The Purchaser has received all the information that it has requested and that itconsiders necessary or appropriate for deciding whether to enter into this Agreement and to acquire the Shares. The Purchaser furtherrepresents that it has had an opportunity to ask questions and receive answers from the Company regarding the terms and conditions ofthe offering of the Shares.4.6Investment Experience. The Purchaser acknowledges that it can bear the economic risk of its investment andhas such knowledge and experience in financial or business matters that it is capable of evaluating the merits and risks of theinvestment in the Shares. The Purchaser has not been organized solely for the purpose of acquiring the Shares.4.7Accredited Investor. The Purchaser is an “accredited investor” as such term is defined in Rule 501 of theGeneral Rules and Regulations promulgated by the SEC pursuant to the Securities Act.4.8Restricted Securities. The Purchaser understands that:(a)the Shares will not be registered under the Securities Act by reason of a specific exemption therefrom,and that the Purchaser must, therefore, bear the economic risk of such investment, unless and until a subsequent disposition thereof isregistered under the Securities Act or is exempt from such registration, such as under Rule 144 of the Securities Act (“Rule 144”);(b)the Shares, whether represented by a physical stock certificate or in book entry form, will be endorsed,stamped or otherwise notated with the following legends (in addition to any legend required by applicable state securities laws):(i)THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTEREDUNDER THE SECURITIES ACT OF 1933 (THE “ACT”) AND MAY NOT BE OFFERED, SOLD OR OTHERWISETRANSFERRED, ASSIGNED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER THE ACTOR UNLESS THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANYAND ITS COUNSEL THAT SUCH REGISTRATION IS NOT REQUIRED.(ii)THE SECURITIES REPRESENTED HEREBY ARE SUBJECT TO, ANDTRANSFERABLE ONLY IN ACCORDANCE WITH, THE TERMS AND CONDITIONS OF A CERTAIN STOCKPURCHASE AGREEMENT BY AND BETWEEN THE STOCKHOLDER AND THE COMPANY. COPIES OF SUCHAGREEMENT MAY BE OBTAINED UPON WRITTEN REQUEST TO THE SECRETARY OF THE COMPANY.(c)The Company will instruct its transfer agent not to register the transfer of any Shares unless (1) theconditions specified in the legend contained in Section 4.8(b)(i) are satisfied and (2) (A) such Shares are transferred to a Person that isnot bound or required to be bound by the restrictions contained in Sections 7 and 8 hereof or (B) the Standstill Term and the Lock-UpTerm have expired or terminated, provided that any transfer described in the foregoing clause (A) or (B) also shall have been incompliance with all applicable provisions of this Agreement.14. 4.9No Short Sales. The Purchaser has not engaged, and will not engage, in any short sales of the Common Stockwithin the three month period prior to the applicable Closing Date.4.10No Legal, Tax or Investment Advice. The Purchaser understands that nothing in the SEC Filings, thisAgreement or any other materials presented to the Purchaser in connection with the purchase and sale of the Shares constitutes legal,tax or investment advice and that independent legal counsel has reviewed these documents and materials on the Purchaser’sbehalf. The Purchaser has consulted such legal, tax and investment advisors as it, in its sole discretion, has deemed necessary orappropriate in connection with its purchase of the Shares.5.Conditions to the Company’s Obligations at Closing.The Company’s obligation to sell, issue and deliver the Shares to the Purchaser at each Closing shall be subject to thefollowing conditions, to the extent not waived by the Company:5.1Representations and Warranties. The representations and warranties made by the Purchaser in Section 4 hereofshall be true and correct in all material respects on the applicable Closing Date. 5.2Obligations. The Purchaser shall have performed and complied with all obligations and conditions required to beperformed and complied with by the Purchaser under this Agreement on or prior to the applicable Closing Date.6.Conditions to the Purchaser’s Obligations At Closing. The Purchaser’s obligation to tender payment of the First Tranche Purchase Price and the Second Tranche Purchase Price,as applicable, and accept delivery of the Shares at the applicable Closing shall be subject to the following conditions, to the extent notwaived by the Purchaser:6.1Representations and Warranties. The representations and warranties made by the Company in Section 3hereof shall be true and correct in all material respects on the applicable Closing Date. 6.2Obligations. The Company shall have performed and complied with all obligations and conditions to beperformed and complied with by the Company under this Agreement on or prior to the applicable Closing Date.7.Restrictions on Beneficial Ownership.7.1Standstill. During the Standstill Term, neither the Purchaser nor any of its Affiliates (collectively, the “StandstillParties”) will (and the Purchaser shall cause its Affiliates not to), except to the extent expressly authorized in advance by BoardApproval:(a)directly or indirectly acquire beneficial ownership of any Shares of Then Outstanding Common Stock,and/or any Common Stock Equivalents, or make a tender, exchange or other offer to acquire Shares of Then Outstanding CommonStock and/or Common15. Stock Equivalents; provided, however, that an acquisition of shares of Common Stock pursuant to a stock split, a stock dividend or arecapitalization of the Company shall not be deemed to violate the provisions of this Section 7;(b)directly or indirectly seek to have called any meeting of the stockholders of the Company, propose ornominate any person for election to the Company’s Board of Directors or cause to be voted any Shares of Then Outstanding CommonStock in favor of any person for election to the Company’s Board of Directors whose nomination has not been approved in advance byBoard Approval;(c)directly or indirectly, solicit proxies or consents, or become a “participant” in a “solicitation” (as suchterms are defined in Regulation 14A under the Exchange Act), without prior Board Approval, or in opposition to the recommendationof the Company’s Board of Directors, with respect to any matter, or seek to advise or influence any Person, in each case with respectto voting of any Shares of Then Outstanding Common Stock of the Company;(d)deposit any Shares of Then Outstanding Common Stock in a voting trust or subject any Shares of ThenOutstanding Common Stock to any arrangement or agreement with respect to the voting of such Shares of Then Outstanding CommonStock (other than as expressly contemplated by this Agreement);(e)propose (i) any merger, consolidation, business combination, tender or exchange offer, purchase of theCompany’s assets or businesses, or similar transaction involving the Company or (ii) any recapitalization, restructuring, liquidation orother extraordinary transaction with respect to the Company;(f)act in concert with any Third Party to take any action in clauses (a) through (e) above, or form, join or inany way participate in a “partnership, limited partnership, syndicate, or other group” within the meaning of Section 13(d)(3) of theExchange Act; or(g)enter into discussions, negotiations, arrangements or agreements with any Third Party relating to theforegoing actions referred to in (a) through (f) above; provided, however, that nothing contained in this Section 7.1 prohibits thePurchaser or its Affiliates from acquiring a company or business that owns Shares of Then Outstanding Common Stock and/orCommon Stock Equivalents provided that any such securities of the Company so acquired will be subject to the provisions of thisSection 7.7.2Standstill Term. As used in this Agreement, the “Standstill Term” means the period commencing on the date ofthis Agreement and continuing until the occurrence of the earliest to occur of:(a)the date that is six (6) months after the First Tranche Closing Date; provided, however, that if theSecond Tranche Closing occurs during such six (6) month period, then the Standstill Term shall extend to the date that is nine (9)months after the Second Tranche Closing Date;16. (b)provided that none of the Standstill Parties has materially violated Section 7.1, the date on which aThird Party publicly announces a tender, exchange or other offer for the Common Stock or proposal that, if consummated, wouldresult in a Change of Control;(c)the date that the Company publicly announces that it has entered into a letter of intent relating to aChange of Control, publicly announces its intent to do so or publicly announces that it is pursuing a transaction that would reasonablybe expected to result in a Change of Control;(d)the date on which the Common Stock ceases to be registered pursuant to Section 12 of the ExchangeAct; and(e)a liquidation or dissolution of the Company.8.Restrictions on Dispositions.8.1Lock-Up. During the Lock-Up Term, except to the extent expressly authorized by prior Board Approval, thePurchaser shall not, and shall cause its Affiliates not to, Dispose of (x) any of the Shares, together with any shares of Common Stockissued in respect thereof as a result of any stock split, share exchange, merger, consolidation or similar recapitalization, and (y) anyCommon Stock issued as (or issuable upon the exercise of any warrant, right or other security that is issued as) a dividend or otherdistribution with respect to, or in exchange or in replacement of, the shares of Common Stock described in clause (x) of this sentence(collectively, the “Lock-Up Securities”); provided, however, that the foregoing shall not prohibit the Purchaser from (A) transferringLock-Up Securities to a Permitted Transferee, provided that any Lock-Up Securities so transferred remain subject to the provisions ofthis Section 8, or (B) Disposing of any Lock-Up Securities in order to reduce the beneficial ownership of the Standstill Parties to19.9%, or such lesser percentage as advised in good faith and in writing by the Purchaser’s certified public accountants that would benecessary pursuant to applicable accounting rules and guidelines so as to not require the Purchaser to include in its financial statementsits portion of the Company’s financial results, of the Shares of Then Outstanding Common Stock.8.2Lock-Up Termination. As used in this Agreement, the “Lock-Up Term” means, with respect to a Lock-UpSecurity, the period commencing on the date of this Agreement and continuing until the occurrence of the earliest to occur of:(a)the date that is twelve (12) months after the applicable Closing Date at which such Lock-Up Security ispurchased;(b)immediately prior to the consummation of a Change of Control;(c)a liquidation or dissolution of the Company; and(d)the date on which the Common Stock ceases to be registered pursuant to Section 12 of the ExchangeAct.17. 8.3Certain Tender Offers. Notwithstanding any other provision of this Section 8, this Section 8 shall not prohibitor restrict any Disposition of Shares of Then Outstanding Common Stock and/or Common Stock Equivalents by the Standstill Partiesinto (a) a tender offer by a Third Party which is not opposed by the Company’s Board of Directors (but only after the Company’s filingof a Schedule 14D-9, or any amendment thereto, with the SEC disclosing the recommendation of the Company’s Board of Directorswith respect to such tender offer) or (b) an issuer tender offer by the Company.9.Miscellaneous.9.1Survival. The representations and warranties contained herein shall survive each Closing and the delivery of theShares thereat.9.2Waivers and Amendments. Any term of this Agreement may be amended and the observance of any term ofthis Agreement may be waived (either generally or in a particular instance and either retroactively or prospectively), only with thewritten consent of both the Company and the Purchaser.9.3Severability. If one or more provisions of this Agreement are held to be unenforceable under applicable law,such provision(s) shall be excluded from this Agreement and the balance of this Agreement shall be interpreted as if such provision(s)were so excluded and shall be enforceable in accordance with its terms.9.4Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the Stateof New York, without regard to conflicts of law principles that would result in the application of the laws of another jurisdiction.9.5Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an originaldocument, and all of which, together with this writing, shall be deemed one instrument. Facsimile and electronic (PDF) signaturesshall be as effective as original signatures.9.6Successors and Assigns. Neither this Agreement nor any rights or obligations hereunder may be assigned orotherwise transferred by either party without the prior written consent of the other party. Subject to the preceding sentence, the rightsand obligations of the parties under this Agreement shall be binding upon and inure to the benefit of the successors and permittedassigns of the parties. Any assignment not in accordance with this Agreement shall be void.9.7Entire Agreement. This Agreement constitutes the entire understanding and agreement between the parties withrespect to the subject matter hereof and neither party will be liable or bound to the other party in any manner by any oral or writtenwarranties, representations, or covenants except as specifically set forth herein.9.8Payment of Fees and Expenses. Each of the Company and the Purchaser shall bear its own expenses and legalfees incurred on its behalf with respect to this Agreement and the transactions contemplated hereby. If any action at law or in equity isnecessary to enforce or interpret the terms of this Agreement, the prevailing party shall be entitled to reasonable18. attorneys’ fees, costs and necessary disbursements in addition to any other relief to which such party may be entitled. The Companyshall pay all transfer agent fees (including, without limitation, any fees required for same-day processing of any instruction letterdelivered by the Company), stamp taxes and other taxes and duties levied in connection with the delivery of any Shares to thePurchaser.9.9Broker’s Fee. Each of the Company and the Purchaser hereby represents that there are no brokers or findersentitled to compensation in connection with the sale of the Shares, and each party shall indemnify the other party for any such fees forwhich such party is responsible.9.10Notices. All notices required or permitted hereunder shall be in writing and shall be deemed effectively given:(i) upon personal delivery to the party to be notified; (ii) upon transmission when sent by confirmed facsimile if sent during normalbusiness hours of the recipient, and if sent at a time other than the normal business hours of the recipient, then on the day on whichnormal business hours of the recipient next commence; (iii) seven calendar days after having been sent by registered or certified mail,return receipt requested, postage prepaid; or (iv) two business days after deposit with an internationally recognized overnight courierwith written verification of receipt. All communications shall be sent to the other party hereto at the mailing address or facsimilenumber set forth below, or at such other mailing address or facsimile number as such party may designate by 10 days’ advance writtennotice to the other party hereto.(a)If to the Company, notices shall be addressed to:HTG Molecular Diagnostics, Inc.3430 E. Global LoopTucson, AZ 85706Attn: Chief Executive OfficerFacsimile: (520) 547-2837With a copy to: Cooley LLP4401 Eastgate MallSan Diego, CA 92121Attention: Steven M. Przesmicki, Esq.Facsimile: (858) 550-642019. (b)If to the Purchaser, notices shall be addressed to:QIAGEN NORTH AMERICAN HOLDINGS, INC.19300 Germantown RoadGermantown, MD 20874Attention: General Counsel With copies to:Dr. Philipp von HugoQIAGEN GmbHQIAGEN Strasse 140724 HildenGermanyFacsimile: 011 49 2103 29 21844 With a copy to: Mintz, Levin, Cohn, Ferris, Glovsky & Popeo, P.C.One Financial CenterBoston, MA 02111Attention: Daniel FollansbeeFacsimile: 617-542-22419.11Headings. The headings of the various sections of this Agreement have been inserted for convenience ofreference only and shall not be deemed to be part of this Agreement.9.12Disclaimer. EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT, NEITHER PARTYMAKES ANY REPRESENTATION OR WARRANTY TO THE OTHER PARTY OF ANY NATURE, EXPRESS ORIMPLIED, WITH RESPECT TO THE SUBJECT MATTER OF THIS AGREEMENT.9.13Limitation of Liability. NEITHER PARTY SHALL BE ENTITLED TO RECOVER FROM THE OTHERPARTY ANY SPECIAL, INCIDENTAL, CONSEQUENTIAL OR PUNITIVE DAMAGES IN CONNECTION WITH THISAGREEMENT.9.14WAIVER OF JURY TRIAL. IN ANY ACTION, SUIT, OR PROCEEDING IN ANY JURISDICTIONBROUGHT BY ANY PARTY AGAINST ANY OTHER PARTY, THE PARTIES EACH KNOWINGLY ANDINTENTIONALLY, TO THE GREATEST EXTENT PERMITTED BY APPLICABLE LAW, HEREBY ABSOLUTELY,UNCONDITIONALLY, IRREVOCABLY AND EXPRESSLY WAIVES FOREVER TRIAL BY JURY.[Signature Page Follows] 20. In Witness Whereof, the parties hereto have caused this Stock Purchase Agreement to be executed by their duly authorizedrepresentatives as of the day and year first above written.HTG Molecular Diagnostics, Inc. By:/s/ Timothy B. Johnson Timothy B. Johnson President and Chief Executive Officer QIAGEN North American Holdings, Inc. By:/s/ Roland Sackers Roland Sackers Chief Financial Officer QIAGEN Exhibit 23.1Consent of Independent Registered Public Accounting Firm HTG Molecular Diagnostics, Inc.Tucson, Arizona We hereby consent to the incorporation by reference in the Registration Statements on Form S8 (Nos. 333-210401, 333-208325 and 333-203930)of HTG Molecular Diagnostics, Inc. of our report dated March 23, 2017, relating to the financial statements which appear in this Form 10-K. Ourreport contains an explanatory paragraph regarding the Company’s ability to continue as a going concern. /s/ BDO USA, LLPPhoenix, ArizonaMarch 23, 2017  Exhibit 31.1CERTIFICATION PURSUANT TORULES 13a-14(a) AND 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934,AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002I, Timothy B. Johnson, certify that:1.I have reviewed this annual report on Form 10-K for the year ended December 31, 2016 of HTG Molecular Diagnostics, Inc.2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by thisreport;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))for the registrant and have: a)designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision,to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others withinthose entities, particularly during the period in which this report is being prepared; b)designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements forexternal purposes in accordance with generally accepted accounting principles; c)evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d)disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s mostrecent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likelyto materially affect, the registrant’s internal control over financial reporting; and5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): a)all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which arereasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and b)any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internalcontrol over financial reporting. Date: March 23, 2017 By:/s/ Timothy B. Johnson Timothy B. Johnson President and Chief Executive Officer(Principal Executive Officer)  Exhibit 31.2CERTIFICATION PURSUANT TORULES 13a-14(a) AND 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934,AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002I, Shaun D. McMeans, certify that:1.I have reviewed this annual report on Form 10-K for the year ended December 31, 2016 of HTG Molecular Diagnostics, Inc.2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by thisreport;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))for the registrant and have: a)designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision,to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others withinthose entities, particularly during the period in which this report is being prepared; b)designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements forexternal purposes in accordance with generally accepted accounting principles; c)evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d)disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s mostrecent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likelyto materially affect, the registrant’s internal control over financial reporting; and5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): a)all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which arereasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and b)any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internalcontrol over financial reporting. Date: March 23, 2017 By:/s/ Shaun D. McMeans Shaun D. McMeans Chief Financial Officer(Principal Financial and Accounting Officer)  Exhibit 32.1CERTIFICATION PURSUANT TO18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TOSECTION 906 OF THE SARBANES-OXLEY ACT OF 2002In connection with the Annual Report of HTG Molecular Diagnostics, Inc. (the “Company”) on Form 10-K for the period ending December 31, 2016as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906of the Sarbanes-Oxley Act of 2002, that: (1)The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2)The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of theCompany. Date: March 23, 2017 By:/s/ Timothy B. Johnson Timothy B. Johnson President and Chief Executive Officer(Principal Executive Officer)  Exhibit 32.2CERTIFICATION PURSUANT TO18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TOSECTION 906 OF THE SARBANES-OXLEY ACT OF 2002In connection with the Annual Report of HTG Molecular Diagnostics, Inc. (the “Company”) on Form 10-K for the period ending December 31, 2016as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906of the Sarbanes-Oxley Act of 2002, that: (1)The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2)The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of theCompany. Date: March 23, 2017 By:/s/ Shaun D. McMeans Shaun D. McMeans Chief Financial Officer(Principal Financial and Accounting Officer) 

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